Money Grows on THESE Trees

My parents used to tell me that money doesn’t grow on trees, but they didn’t know about the Eucalyptus trees in Australia like the one shown below.

Money Tree

The science journal, Nature Communications, reported Eucalyptus trees in western and southern Australia absorb gold through their roots and transport it up all the way through their leaves.  The findings suggested the trees could tap into gold deposits up to 115 feet deep. While the amount of gold found is relatively small, these trees may help miners more efficiently locate gold deposits, which over vast lands, may otherwise be a costly process.

Over the past decade, as gold prices rose, gold companies spent heavily on new capital projects and exploration as shown in the chart below.

Gold Production Cost

However, that level of spending may not be sustainable since the price of gold has fallen 28.6% from its peak price on August 22, 2011, as measured by the S&P GSCI Gold.   

 

Source: S&P Dow Jones Indices. Data from Jan 1978 to Oct 24, 2013. Past performance is not an indication of future results. This chart reflects hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with backtested performance

Source: S&P Dow Jones Indices. Data from Jan 1978 to Oct 24, 2013. Past performance is not an indication of future results. This chart reflects hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information regarding the inherent limitations associated with backtested performance.

Cutting capital costs may not be the best solution though, since that may result in a decline in production, and consequently drive up the cost of producing each ounce of gold. The Citi report containing the above production cost chart also showed that despite the tenfold rise in capex over the past 12 years, production fell 5%, with unit costs rising 16% annually.

While it is possible the Eucalyptus trees could help reduce capital expenditures, gold prices continue to be more strongly influenced by the quantitative easing.  Yesterday on Oct 24, 2013, S&P GSCI Gold reached a new high of 786.2, since Sept 19 when the Fed announced it would not taper its bond buying.  If the U.S. economic data keeps missing expectations, then the dollar may weaken and the Fed may continue its stimulus, supporting gold even further.

 

The posts on this blog are opinions, not advice. Please read our disclaimers.

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