Libertarian_Guard
09-07-2003, 03:36 AM
http://www.sundaytimes.co.za/2003/09/07/business/news/news01.asp
Analysts see continued strength in the gold price but are cautioning against piling into local gold shares, which they see as over valued.
The spot gold price, which has risen some 17% since April, held above $370/oz this week, buoyed by major international funds that have been encouraged by the weak dollar, rising US bond yields and mounting violence in the Middle East and India.
The metal was fixed at 375.80, up $3.30, in London on Friday afternoon and was later trading at $377.10.
Local gold stocks have benefited as a result, with the JSE's gold index adding 94.25 points or 3.7% to 2 633.33 this week. AngloGold, South Africa's top producer, ended the week up 3.3% at R293.98, while No 2 Gold Fields put on 3.8% to R105.75.
"What we have seen in recent weeks is a decoupling of the gold price and the dollar," says Patrice Rassou, a portfolio manager at Old Mutual Asset Management.
He points out that although the dollar has gained some ground against the euro in the wake of encouraging economic data out of the US, "the gold price is not moving back as one would expect".
Rassou says there are a number of factors behind the metal's strength. These include investors moving out of US bonds as yields have edged higher, along with concerns over factors such as rising incidents of terrorism against US and British forces in Iraq and power failures in the US and on the London Underground rail network.
In addition, there has been a record build-up of long positions on New York's Comex by major international funds. They are concerned about the well-being of the US economy and the global economy's ability to rebound.
"There is a crowd of worried people out there who still think that despite signs of an improvement in the US economy, gold is the right place to be," Rassou says.
But he warns that local gold shares are looking expensive and that diversified resources counters, such as Anglo American, offer better value.
He notes that the gold price in rand terms has been relatively steady at around R87 000/kg and although there are still expectations that the local currency will turn weaker against the dollar," in fact the rand has been going the other way and at some point the reality of lower earnings [by gold mines] must kick in.
"The market is not taking this into account and just focusing on the gold price. It can't do this forever."
Steve Shepherd of JP Morgan agrees. "Even at a real exchange rate in excess of R8 to the dollar, a gold price of between $400 and 450/oz is required to justify current local share prices, depending on which particular counter you are looking at."
JP Morgan recommends that investors use any future strength in the gold price to take some profits.
"We prefer diversified resources shares such as Anglo American, BHP Billiton and platinum counter Impala," Shepherd adds. "We also view a recovery in the US as being positive for pulp and paper producer Sappi."
Analysts see continued strength in the gold price but are cautioning against piling into local gold shares, which they see as over valued.
The spot gold price, which has risen some 17% since April, held above $370/oz this week, buoyed by major international funds that have been encouraged by the weak dollar, rising US bond yields and mounting violence in the Middle East and India.
The metal was fixed at 375.80, up $3.30, in London on Friday afternoon and was later trading at $377.10.
Local gold stocks have benefited as a result, with the JSE's gold index adding 94.25 points or 3.7% to 2 633.33 this week. AngloGold, South Africa's top producer, ended the week up 3.3% at R293.98, while No 2 Gold Fields put on 3.8% to R105.75.
"What we have seen in recent weeks is a decoupling of the gold price and the dollar," says Patrice Rassou, a portfolio manager at Old Mutual Asset Management.
He points out that although the dollar has gained some ground against the euro in the wake of encouraging economic data out of the US, "the gold price is not moving back as one would expect".
Rassou says there are a number of factors behind the metal's strength. These include investors moving out of US bonds as yields have edged higher, along with concerns over factors such as rising incidents of terrorism against US and British forces in Iraq and power failures in the US and on the London Underground rail network.
In addition, there has been a record build-up of long positions on New York's Comex by major international funds. They are concerned about the well-being of the US economy and the global economy's ability to rebound.
"There is a crowd of worried people out there who still think that despite signs of an improvement in the US economy, gold is the right place to be," Rassou says.
But he warns that local gold shares are looking expensive and that diversified resources counters, such as Anglo American, offer better value.
He notes that the gold price in rand terms has been relatively steady at around R87 000/kg and although there are still expectations that the local currency will turn weaker against the dollar," in fact the rand has been going the other way and at some point the reality of lower earnings [by gold mines] must kick in.
"The market is not taking this into account and just focusing on the gold price. It can't do this forever."
Steve Shepherd of JP Morgan agrees. "Even at a real exchange rate in excess of R8 to the dollar, a gold price of between $400 and 450/oz is required to justify current local share prices, depending on which particular counter you are looking at."
JP Morgan recommends that investors use any future strength in the gold price to take some profits.
"We prefer diversified resources shares such as Anglo American, BHP Billiton and platinum counter Impala," Shepherd adds. "We also view a recovery in the US as being positive for pulp and paper producer Sappi."