Ilja Graulich, Investor Relations, DRDGOLD
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» SA golds go ballistic
» Gold, dollar link a myth?
» We’re comfortable with the gold price - Jessica Cross, Virtual Metals
» Gold could test new highs - GFMS
» We're beginning to look at SA golds - Mark Mobius, Templeton


Going up: Bright future for gold
David McKay
Posted: Sun, 18 Sep 2005

[miningmx.com] -- THERE’s genuine excitement again that the dollar price of gold is to test multi-year highs and that this time, South African stocks might actually benefit. At $450/oz last week, gold was at its highest level in 17 years.

More interesting yet, dollar weakness wasn’t the cause. Normally, the weaker dollar implies a stronger rand, so South African gold stocks see dollar gold gains offset. That’s why there’s an inverse relation between the dollar gold price and the JSE gold index. But with the rand stable, revenues for gold producers were higher – about R92,000/kg – than seen for a while.

According to Jessica Cross, MD of Virtual Metals, a UK metals research house, gold could yet burst through $470/oz. “We put the high at $472, and I think we’re quite comfortable with sticking with that peak for this year,” Cross said in an interview on Classic Business, a week-nightly radio business programme.

Were this to be the case, and the rand remained at current levels of about R6,40 to the dollar, gold stocks AngloGold Ashanti and Gold Fields should tempt investors, says JP Morgan. However, marginal gold plays Harmony Gold and DRDGOLD will still look expensive, the stockbroker says.

Tell that to the US gold traders. DRDGOLD has doubled in price since May and Harmony is 43% stronger over the same period. According to Ilja Graulich, investor relations manager for DRDGOLD, there’s anecdotal evidence of switching from Harmony to DRDGOLD even though the company’s earnings will be driven from its rand affected South African mines in the short term.

There’s optimism everywhere. “We are raising our 2005 gold price forecast from $424/oz to $433/oz,” said Alberto Arias, an analyst for Goldman Sachs in a recent note. RBC Capital Markets also updated its gold price from $450 to $485/oz for 2006. Moreover, there’s hope in SA that the dollar gold price has ‘unlinked’ from the dollar.
Is the dollar unlinking from the gold price?
“Is gold beginning to unlink from the dollar based on the growing recognition of the coming lower gold mine supply and rising costs, or is a pullback looming after Comex gold positions hit a new peak?” said Steve Shepherd, JP Morgan’s gold analyst.

Matthew Turner, commodity analyst at Virtual Metals, said that despite a recent sell off on Comex, the overall position of gold traders was long. But he doesn’t believe there’s been a permanent unlinking between the dollar gold price and the dollar performance. Cross reckons it’s all down to supply and demand fundamentals which are giving particular momentum to the gold price.

The World Gold Council reported a 14% increase in gold demand in the second quarter of 2005, and with the festival season in India, the world’s largest gold consumer, the outlook remained good. Central banks were also 9,5 tons away from meeting a quota of 500 tons for the year, more than which they are not entitled to sell annually. De-hedging and political uncertainty continue to breathe new life into Keynes’s barbaric relic.