Game far from over for gold

Philip Klapwijk, chairman of GRMS, spoke at the launch of the group’s 42nd edition of its annual survey. He said, “the price may have pulled back a fair bit from the February highs but that was largely just the market’s reaction to jewellery demand crumbling and scrap booming. It’s far from game over for investors and it will be that crowd which sets the price alight”. The report singles out the fiscal and monetary policies currently being enacted, especially by the US administration, as the root cause of gold’s potential, through their ability to generate inflationary pressures.
GFMS also expect central banks to be reluctant to raise interest rates whilst the prospects for economic growth are shaky.
Strength in investment will certainly be needed to overcome weakness in the fundamentals, with Klapwijk adding, “so far this year, we’ve seen times when major fabricating countries like Turkey have been exporting bullion because jewellery demand had collapsed and scrap was so strong. There’s no way that’s sustainable even in the medium term and I’d argue that’s the main reason the rally this year failed in the $980s”.
The consultancy, however, cautioned that it may well not be a straight line rally as a summer lull or the need for inflationary pressures to build could mean sub-US$900 prices in the short term.
Gold has already experienced a good deal of volatility in 2009 – it started the year at around US$880/oz, jumped briefly into four-digit territory in February, and has fallen back over the last couple of weeks, to about US$883/oz this week, as some investors returned to equities.
GFMS predicts, in the medium term, prices could retrace from current levels; the mid to low US$800s are a possible low over the rest of this year, with prices in that region most likely to eventually be pushed up by bargain hunting and stock replenishment.
It also expects production to rise slightly in 2009 while official sector sales should be weaker.
Imbalances in the market suggest that sooner or later the gold price will have to retreat. Nevertheless, GFMS says this is most unlikely to occur until end-2009 and potentially not until well into 2010 given current economic conditions, which favour gold investment.
Addressing the Paydirt gold conference last week, Westpac Economic Research senior economist, Justin Smirk, said gold had a good future “but was close to its peak price”.
“It will continue to do well but it will be outperformed by other rebounding commodities which will move faster as economies recover,” Smirk said.
“Gold is a good buy now as a hedge but perhaps not for much longer in terms of comparison against other metals.
“The world deflationary spiral has and is currently keeping gold below US$1,000 an ounce and I don’t expect it to get back above that, or not by much, for about two years.
He said that the metal will need an outbreak of inflation to have a strongly positive future - but that means other commodities will also be benefiting at the same time and would most likely outperform gold.
Smirk said Westpac’s forecasting suggested a gold price of around US$914 an ounce in 2010, rising to US$1,063 in 2011 and US$1,150 in 2012.
Also speaking at the Paydirt conference, Hartleys Limited’s lead director, corporate finance, Grey Egerton-Warburton, said the Australian gold industry had changed significantly in the past few years with fewer local operations.
“While the high gold price has led to renewed interest in the sector, the high price had not in recent years ensured the profitability for all gold operators. Rising capital and operating costs and staff shortages during the boom had more of a negative impact than the upside from the rising gold price,” he said.
“However, Hartleys believes the sector will change significantly again – and for the better - in 2009.
“An analysis of the share price returns of gold stocks since January 1st this year shows that gold stocks have significantly outperformed the All Ordinaries and the S&P ASX200 resources index, over this time.
“The outlook for gold stocks appears strong for the foreseeable future.”
He said that Australian gold companies with domestic and offshore production will be considerably more profitable with the rising US Dollar gold price and the lower Australian dollar.


New centre opens to serve Goldfields resources sector
Mines and Petroleum Minister Norman Moore officially opened the new Kalgoorlie Regional Complex - a State Government facility that is a ‘one-stop shop’ for services to the Goldfields mining sector.
The centre, which opened for business in October 2008, houses more than 40 State Government workers and offers companies access to the latest technology to help with their exploration and mining activities.
It consolidates services offered by the Department of Mines and Petroleum and Department of Commerce.
Moore said mining companies would now have access, in a single convenient location, to everything from geological and mineral titles information to workplace safety and environmental advice.
“The Kalgoorlie Regional Complex provides a more efficient delivery of Government services in one of the most important centres for the Western Australian resources industry,” he said.
“It supports the Government’s commitment to regional development in Western Australia and is the culmination of an idea first floated in 2001 under the Coalition Government of Richard Court.”
The complex connected to the drill core library for the Geological Survey of Western Australia, which provided important geological information to aid mineral exploration.
“The industry asked for a one-stop shop in the Goldfields, with more privacy for users of the Tengraph titles information system, improved reception facilities, confidential meeting rooms and adequate parking - and that’s exactly what this new facility provides,” the Minister said.
“Other services available include the regional mining registrar, mineral and title services, environmental services and resources-specific safety services.
“Staff at the complex also provide workplace safety, consumer protection and labour relations services to the community.”