US$1,000 an ounce no longer gold’s ‘magical barrier’

Addressing the Paydirt Australian Gold Conference, Westpac senior international economist, Huw McKay, said the gold price had stepped up year-on-year by about US$100 an ounce above predictions, for at least the past five years.
“What we did not know was going to happen was that we were going to have such an enormous collapse in risk appetite that pushed gold beyond the US$1,000 magical barrier,” McKay said.
“That has changed gold trends forever and what was once an invisible ceiling, is now more a level where we talk about the US$1,000 an ounce price as more of a floor price going forward.
“It is now being seen as the level at which any plunge in the gold price will start to pull out of such a dive.”
McKay attributed the gold price pressures to two main factors - the change in demand for jewellery - from two thirds of world gold consumption in 2007 to around 40 per cent currently.
“In parallel with this, there has been an expansion in exchange traded products which have grown from accounting for 7 per cent of total gold consumption in 2007 to 19 per cent now.
“This is a dramatic trend movement move and it is here to stay,” McKay said.
“World equity markets and financing has so much uncertainty to it that the allure of gold has never been stronger.
“Demands for gold has shifted to the investor, with very strong fundamental trends coming together to fuel investor appetite for things they can see, touch, hold and put in a warehouse. Gold certainty meets that criteria.”
McKay said the turn towards gold had come out of all other asset classes as “investors try to get into something that holds value”.
The Westpac executive predicted gold holding at around US$1,006 an ounce by the end of this year, moving only slightly higher to around US$1,030 by 2011.
“We do not see immense upside in gold but it is certainly there,” McKay said.

Gold sector warned to protect against predators
Owners of Australia’s gold assets have been urged to take far greater precautions to protect the confidentiality of their information by Minter Ellison’s Stephanie Rowland.
She told the Paydirt conference this week that the sector will undergo increasing merger and acquisition activity, fuelled by ongoing strong prices and the flight to warehoused gold inventories by central banks.
The need for greater protection is also being exacerbated by the increasing number of transactions involving predatory or complex deals with the plethora of overseas investors circling Australia’s resources assets and owners.
Rowland, a WA-based merger and acquisition (M&A) specialist in resources, said failure by companies to adequately protect the confidentiality of their data could lead to loss or decrease in value of a joint venture, an asset or even the entity.
“With Australia moving to a position as the second largest gold producer in the world, this has created an unprecedented environment where domestic gold companies will be having the “predatorial rule” run over their assets with increasing frequency,” said Rowland.
“Before this M&A tsunami hits, project owners should be reassessing whether they have the protocols in place to protect the commerciality and ownership of the information that needs to be shared but kept confidential.
“This is particularly so if a gold owner is subject to the strong likelihood of multiple suitors - an environment where the audit trail of who knows what, becomes very blurred.”
Rowland urged Australia’s gold sector to lock in confidentiality agreements with potential investors before negotiations reached a stage where confidential information about the target company was communicated to the buyer or investor.
“The choice of legal forum or even the choice of law that an Australian gold owner may be forced to fall back to, to contest overseas any derailed confidentiality agreement, can mitigate against protecting or even continuing to own a gold asset,” Rowland said.