Gold shares are pricing in higher gold prices

Wayne McCurrie, fund manager, Momentum

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Gold shares are pricing in higher gold prices - Karl Leinberger, Coronation

[miningmx.com] -- RESOURCE stocks had struck a second peak, but gold stocks would not necessarily slip into free-fall, said Wayne McCurrie, a fund manager for South African firm, ADvantage Asset Management.

“The resource cycle has been very strong now for about the last two years and that is unusual. Normally it peaks literally within six months ... but now it’s doing a second peak. I think this in fact might be the top of the resource market and resource prices," he said. McCurrie was speaking on the Moneyweb Power Hour.

However, the factors that caused the gold price to fall were probably going to cause the rand to weaken. “So it doesn’t necessarily mean you’ve got to restructure your resource shares,” he said.

In order to understand gold shares, it was necessary to examine gold shares on whether their price/earnings ratios were out of whack with the future gold price and the future value of the rand against the dollar. “Then make an absolutely normal buy and sell decision on that basis.”

I think this might be the top of the resource market

Karl Leinberger, head of research at Coronation Asset Management, was more cautious, however. Speaking on the same business programme, Leinberger said it was time to sell gold shares.

"The sort of extent and quantum of the price increases we’ve seen in the last few weeks and months, I think we’re in much more difficult territory here, and I think I would be very cautious if one were to look at buying gold shares at this point,” he said.

“It’s our view that the gold shares are pricing in higher gold prices than we currently see in the market today and with undoubtedly a certain amount of speculation that has driven prices to where they are now, I think it’s certainly quite difficult to justify gold shares at current valuation levels.”