Europe’s Debt Crisis Spurs Demand For Gold

on Jun 1, 2012

Profits of gold-producers have been boosted by the ongoing debt crisis in the Eurozone, with money printing by central banks spurring demand for precious metals. In the beginning of May 2012, both Randgold and Barrick Gold reported an increase in net income.

On May 3 2012, Bloomberg wrote that the first-quarter profit of Randgold Resources Ltd. (RRS), a miner of precious metals in Africa, more than doubled. Randgold’s net income climbed to $89.4 million, compared to $41.5 million a year earlier. In addition, Randgold’s sales rose with 46 percent to $271.8 million, relative to the corresponding quarter in 2011.

The company’s production was also up with 19 percent as compared to the first 2011 quarter, despite the political instability in Mali, where Randgold Resources Ltd. mines approximately two-thirds of its gold output. As noted in the Bloomberg article, the country returned to a civilian-led administration after three weeks of military rule, and is expected to hold a presidential election in a year. The Randgold’s CEO Mark Bristow, however, points out that at present the political situation has not had an impact on the company’s gold shipments or any key supplies.!m[](/uploads/story/16/thumbs/eurogold_notes_inline.png)

The first-quarter results for Randgold are most likely on account of the increased gold production and rising prices, with the company saying in a statement that it produced 165,443 ounces in the period. Gold has been experiencing near-record prices for bullion partly due to Europe’s sovereign debt. Gold for immediate delivery averaged $1,691 an ounce in the first quarter, as compared with $1,388 a year earlier.

The world’s largest gold producer, the Toronto-based company Barrick Gold Corp. (ABX) also reported a 2.8 percent increase in its first-quarter profit due to the rising gold prices. Barrick’s net earnings advanced to $1.03 billion, or $1.03 per share, from $1billion, or $1.00 a share over the same period the previous year, as indicated in the company’s first quarter report for 2012, released on May 2.As noted on the company website, the net earnings results reflect a higher average realised gold price. The gold price in the first quarter of 2012 was $1,691 per ounce, 22 percent higher than the same period of the previous year.

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In addition, Barrick’s sales rose by 18 percent, amounting to $3.64 billion. The company’s CEO Aaron Regent is planning to increase Barrick’s annual output to approximately 9 million ounces of gold by 2016, with this year’s forecast being 7.8 million ounces. Yet, the company expects that its capital spending in 2012 will be $5.5 billion to $5.9 billion, or with 19 percent more than last year.
In April 2012, Bloomberg reported that gold may advance as the debt crisis in the Eurozone would increase demand for the precious metal as an alternative investment. Over the recent months, gold prices have been largely influenced both by the debt crisis and speculation as to whether or not Greece would stay in the Eurozone. According to the Bloomberg Global Poll, more than 50 percent of investors are predicting an exit from the 17-nation Eurozone in 2012.

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