Great Article!
- James Kirby
- February 22, 2009
THERE'S always money to be made somewhere: just now that "somewhere" is in gold.
Goldprices have been rising for months. But until very recently investorshave been understandably sceptical. The gold sector is uniquely loadedwith schemers and dreamers. Still, with price records being broken,suddenly everyone's paying attention.
In the space of a few months, gold prices have soared from under $US1000 to strike $US1524 at one stage last week.
Onthe back of that powerful price surge mines are reopening, new jobs areappearing across the sector and the Perth Mint (the government-ownedgold factory) is so busy the director, Nigel Moffatt, has revealed themint has put on extra shifts for its workers.
But it takes timefor news like this to flow through the market. Only in recent weeks asthe big gold miners — even perennial disappointments such as Lihir Gold— have reported very strong results have the facts struck home.
Whathappened? Well, the answer is rarely simple when it comes to goldbecause you have to view it as both a metal and as a "safe" currency.
Essentiallyas stockmarkets continue to flounder — the ASX has been in declinesince November 2007 while Wall Street is retesting record lows —investors believe gold is a "hedge" against uncertainty.
Thoughmany factors are driving gold prices — lower fuel costs, a lowerAustralian dollar (against the US, where prices are set) — the mainforce behind higher gold prices is fear that the financial crisis willbe either deeper than we think, or will trigger a new round ofinflation. At worst, there are fears it could do both.
Will thegold price keep going up? Unfortunately, even by the woeful standardsof commodity forecasting, gold price forecasts are exceptionallyunreliable. But for what it's worth the report that has really got themarket buzzing is from Merrill Lynch. The New York investment bank maynot be the power it once was, but a major report from the broker canstill cause a buzz: Merrill Lynch says that gold can lift another 50per cent; Merrill Lunch suggests it can go from about $US975 today to$US1500 in 12 to 15 months.
The forecast is remarkable and hitsthe trading rooms just as gold makes a return to centre stage in thewake of inflationary stimulus packages being launched in almost everyWestern economy.
As Rod Hanson, the managing director at BendigoGold, explains: "There's a historic tradition of investors moving intogold at times of great uncertainty … this time it seemed to be a whilecoming, but now it has really kicked in."
Gold fever has now"kicked" in to the degree that mines recently facing a crisis are beingreinvented. St Barbara, one of the biggest local miners, suffered asell-off last year as gold prices temporarily drifted and the deep mineshaft the company required used up too much fuel. With oil prices atless than a third of their peak in 2008, St Barbara is back in businesswith a rising stock price. Meanwhile, Kagara, best known as a zinccompany, says it will list its gold assets in a separate company on theASX.
Brokers believe it's only a matter of time before we get newgold floats. Remember this is in a market where nobody is "spinning offassets" and nobody at all is talking about new stockmarket floats. TheASX "upcoming floats calendar", which until this year was always filledwith dozens of applications, has a paltry three floats representing agrand total of $16 million.
Nobody knows if gold can keep goingup … including Merrill Lynch. In fact, it lost a little ground over thepast few days. But two factors stand out: gold prices are now so highthey can fall — a lot — and gold miners can still make handsomeprofits. A strong gold price can be sustained by uncertainty in themarkets, and these are the most uncertain markets in a generation.
kirbyjourno@hotmail.com
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