The gold industry is in a difficult place right now. Since the April crash, the price of spot gold has remained in between $1250 and $1350 per ounce. Gold manufacturers were not expecting that cataclysm, and are having a hard time adjusting to the new price structure of the industry. According to a new Citigroup Inc. (NYSE:C) report, that’s going to have negative effects for some time to come.

Gold industry

The Citi report relies on the bank’s propriety model for gold costs across the world. The firm reckons that at current gold prices, almost all of the international gold industry is burning cash. By almost all, the analysts are talking about 98 percent of the industry, an astonishing proportion.

Gold companies not changing on price

The Citigroup Inc. (NYSE:C) report blames the unbalanced nature of the gold industry today on the fall in gold prices and the inability of the industry to deal correctly with the adjustment. According to the research, companies are failing to cut costs like capex, exploration and corporate costs. The Citigroup Inc. (NYSE:C) gold cost model is all in. That means it includes capital costs as well as current costs.

Gold Industry

The gold industry is attempting to adjust, except for the 12 percent drop in the price of gold since the start of the year. The period between 2009 and 2012 was abnormal in the gold industry in the view of the analysts. The companies saw their margins expand and business get more profitable. Those days are over, if the report is to be believed.

The analysts previously predicted that the margin expansion could not last forever. They argued that Capex would rise to consumer the excess cash flow or the price of gold would stabilize. In their view both of these have happened, and the industry is having trouble keeping up with the changes.

Gold industry inefficiency

The gold industry has massively increased investment in the last decade, but it hasn’t resulted in an increase in production. That means that the excess costs are not resulting in marginal improvement in business. The only thing keeping those costs so high was the price of gold. Overall costs in the gold industry have risen by an amount that is unjustifiable by today’s price.

Gold’s super normal profits

This means that gold has not been that good of an investment in the last decade, but the high price of the yellow metal led many to get involved in the industry. Supernormal profits have disappeared and the companies in the industry are left sitting on the embarrassment of riches that forms their high capex spending. That spending is not increasing gold production.

The Citigroup analysts are bearish on the gold industry because of the unbalanced nature of most of the companies out there. The poor investment results from capex in the last decade is another indicator that the industry is a poor one to store money in right now.

98 percent still leaves some investment ideas, however. The analysts think that Petropavlovsk PLC (LON:POG) (OTCMKTS:PPLKY), Harmony Gold Mining Co. (ADR) (NYSE:HMY) and AngloGold Ashanti Limited (ADR) (NYSE:AU) look more vulnerable than competitors. The least vulnerable, according to this report, are Medusa Mining Limited (LON:MML) (ASX:MML), Yamana Gold Inc. (NYSE:AUY) (TSE:YRI), Barrick Gold Corporation (NYSE:ABX) (TSE:ABX), Compania de Minas Buenaventura SA (ADR) (NYSE:BVN), Goldcorp Inc. (TSE:G) (NYSE:GG), OceanaGold Corporation (TSE:OGC) (ASX:OGC) and Centamin PLC (TSE:CEE) (OTCMKTS:CELTF).