[miningmx.com] – THE direction of the gold price lately, which has fallen
more than $100/oz since the beginning of May, would seem a surprising development
given fresh fears about Greece’s destiny.
The view in the market is that gold is being sold in these times of extreme distress
just like any other risk asset, in order to cover losses elsewhere. The preference is
for the dollar, although there’s dispute about how sustained this will be.
According to Goldman Sachs, in a report dated May 9, gold’s position as the currency
of last resort remains intact. “Despite this recent pull-back, which has brought into
question gold’s status as the currency of last resort, we believe that the case for
higher gold prices remains in place,” it said.
It believes that mid-June will be a key time for the gold price. That’s when the US
Federal Reserve meets where it may decide on further monetary easing. Ongoing
troubles in the EU are likely to come to a head in June as well, not least of which is
the prospect of a new general election for Greece, around June 17.
In the view of Scotiabank, it believes in a report issued on May 16 that the gold price
weakness was mostly a seasonal effect. Another stockbroker, however, said that gold
was likely to remain under pressure in a deflationary environment, although it would
outperform other precious metals.
Clearly, this is not great news for gold counters, the last of which to report its first
quarter results was Gold Fields, which added gold production was unlikely to exceed
3.5 million ounces for the financial year.
The South African gold index is actually marginally higher in May, but since the
beginning of the year it makes for dismal reading having shed just over a fifth. The
torpor is not just restricted to South Africa where there are special industry factors –
such as inflation and stoppages – mark them out for harsh treatment.
According to Scotiabank, most North American seniors, as well as AngloGold and Gold
Fields, are discounting at an effective gold price of about $1,300/oz. Gold shares stop
generating free cash flow at about $1,550/oz.
Gold mining stock losses in the US hurt Paulson & Co’s Advantage Plus fund which is
exposed to companies like AngloGold Ashanti and Gold Fields. In fact, Paulson & Co
sold 1.1 million AngloGold Ashanti depository receipts in the first quarter, according to
a report by Bloomberg News.
However, John Paulson believes AngloGold offers “upside in the gold space” even
though it has lagged bullion over the last three years.
What do the central banks think of gold, meanwhile? According to the World Gold
Council, which today issued its first quarter Gold Demand Trends report, the official
sector remained a net purchaser of the metal.
Demand was driven by Eastern Europe as Russia’s and Kazakhstan’s central banks
both added to reserves. Mexico’s central bank made the largest single purchase of
16.8 tonnes.
From an investment perspective, first quarter demand for ETFs and similar products
totalled 51.4t, equivalent to a value of $2.8bn, the World Gold Council said. “This was
in stark contrast to the first quarter of 2011, when the sector witnessed net outflows,”
it added.
