[miningmx.com] – THE improvement in the value of South African gold shares would be supported by “a healthy” R450,000 per kilogram gold price, said JP Morgan in a report that also tempered the outlook for the dollar price of gold.
The bank said the rand would trade at 11.80 to the dollar by end-2015 compared to a current level of 11.528, but it added that the South African mining sector remained full of challenges while in dollar terms the gold price would weaken.
In a report published on January 28, JP Morgan analyst, Allan Cooke, said: “So we’re looking at our numbers to opt for gold stock picks where we see potential for ratings to recover further”.
Since then, the JSE gold index has made further gains with Sibanye Gold and Harmony Gold – both almost exclusively South African gold producers – rising 52% and 62.5% respectively since early January.
As a result, Cooke felt that Sibanye was fairly priced, but that Harmony Gold could track up another R10/share or so.
In its report, JP Morgan warned that dollar strength, and the prospect of interest rate rises, would cap dollar gold price gains.
It added that there were key risks from operating in South Africa including “… a difficult labour climate, potentially fractious wage negotiations later this year, Eskom’s generating capacity and funding issues, ongoing regulatory uncertainty, cost inflation (labour & power), despite lower oil prices, and moribund productivity”.
Standard Bank said it had a relatively optimistic outlook for the gold sector owing to distressed macro-economic factors, especially in Europe, and with China’s economic growth slowing to about 7%.
“We think that the dollar will continue to strengthen substantially, but in Euro and Rand terms, the gold price is not that bad,” said Walter de Wet, an analyst for Standard Bank. It forecast an average price of $1,223/oz for gold in 2015 which compares to JP Morgan’s $1,233/oz average for the year.
“Gold is likely to be neutral at around $1,223/oz in 2015 although we expect prices to remain volatile as uncertainty around a US recovery persists as well as the slowing EU and Chinese economies,” said Adrian Hammond, an analyst for Standard Bank Group Securities earlier this year.
“We foresee more positive than negative drivers to support the price in the short- and long term,” he added of the gold market.
However, the sudden increase in the gold price presented dangers, said Ole Hansen, Head of Commodity Strategy at Saxo Bank.
“The big rise in investment demand for gold during January has now left the metal vulnerable to a near-term correction,” he said in a report.
“Short positions in futures and options have collapsed from a record 81,000 lots back in September to now just 22,000.
“This leaves a very limited amount of short covering available to cushion the fall should the price break key support in the $1,250 to $1,255 area,” he said.
