A tale of two ‘doomsdays’: gold and the global economy

A “doomsday scenario” drop to $1,000/ounce would “make half the gold industry worthless,” according to Bank of America Merrill Lynch.

Despite recent hiccups in gold’s long bull run, gold is currently hovering at roughly $1,600 per troy ounce.

Gold stocks, however, have been unable to match the precious metal in performance over the past couple of years as “rising costs, expensive acquisitions and paltry dividends” have pushed investors away, wrote Tatyana Shumsky of the Wall Street Journal on Monday.

Many analysts – including those who hold stake in bullion and bullion stocks – have increased their economic doomsday rhetoric in recent weeks in the face of equities surges in the US, Japan and elsewhere.

In the last few days alone one reads of “inflationary holocaust,” banks moving to “enslave humanity,” “tsunamis in the key markets,” and plenty of historical comparisons of the Cyprus debacle to the assassination of Habsburg Archduke Franz Ferdinand, catalyst of the First World War.

But the gold bug hyperbole may not yet be necessary as many gold companies are managing to operate at low-costs. Producers like Randgold and Goldcorp Inc. are still good buys at depressed share prices, says BofA.

Gold producer Beadell Resources Ltd. has also attracted a great deal of investor interest recently as it targets production costs at a Brazilian mine 1/3 below the global industry average.

BofA also suggests that gold streaming companies are less vulnerable to price dips because of their business structure which allows companies to “buy precious metals at a steep discount from miners who dig up gold and silver in the course of producing other metals.”