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SA gold shares in melting pot Posted: Tue, 13 Jun 2006 [miningmx.com] -- SOUTH African stocks were dumped as gold slipped through $600/oz, its lowest level since April. The metal was last trading at $582.30/oz at the time of writing. The Johannesburg gold index closed down 8.4% as South African gold stocks buckled under selling pressure. Worst hit was Simmer & Jack Mines (-12.2%) and Mvelaphanda Resources (-10.3%) which derives about two-thirds of its net asset value from its investment in Gold Fields. “Gold has to hold the $570/oz level or there will be big trouble,” said Leon Esterhuizen, a gold analyst for Investec Securities. “The market in gold is technically driven so when the gold price sank through $600/oz some panic set in,” he said. No gold stocks escaped the pressure. Gold Fields was 8.5% weaker while AngloGold Ashanti, which normally stands up better than most South African gold shares during selling owing to its hedging strategy, was 6.8% weaker on the day. DRDGOLD was 10.2% lower but Harmony Gold, which owns most of South Africa’s marginal gold mines, was only 5.6% down. The day's biggest loser in South African mining was Northam Platinum which was 20% down on the day. “There’s lots of value in South African gold shares, but investors are standing back at the moment because they really don’t know where the market is going with this,” Esterhuizen said. Interestingly, the rand gold price is only slightly lower, down about R2,000/kg at R128,000/kg from June 12. “Granted, costs have increased substantially since then, but the market seems to be ignoring that rand gold prices are higher than in 2002 when we had the strongest rally in share prices on the back of a weak rand,” another analyst said. “I expect gold will return to its 200-day moving average of about $540/oz before stabilising and resuming its upward trend,” said David Davis, a gold analyst for Andisa Securities. “Clearly, what we’re seeing is a pull back delayed by some of the geopolitical troubles at the beginning of the year,” he said. Seasonal factors were also in evidence, said Davis who added that the middle part of the calendar year was usually a soft period for commodities. “After jewellers have destocked, there is a period of restocking before the Indian Diwali season,” he said. Diwali is due to begin in October or November. Nick Goodwin, an analyst for T-Sec, who has been bearish on gold for several years, said the gold price would stabilise at about $550/oz before slowing trending down. The weakness in the gold price was partly owing to the exchange traded funds (ETFs) which had introduced inexperienced investors into the market. “They start out as investors and end up as speculators,” Goodwin said. “They [ETF’s] are a helluva dangerous instrument,” he said. The mainstay of the gold market was the jewellery and industrial sectors which formed about 80% of demand. Investment buying was only at the margin and so when inexperienced speculators saw the gold price at below their entry level (into ETFs), they panic, Goodwin said. “This forces the bank to release physical gold into a falling market which accelerates the selling. Any pension funds investing into ETFs ought to be brought to book,” he said.Free news alerts: click here to subscribe
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