ELD rec............
Funds bet on brighter days for gold miners
By Brian Spoors
LONDON, Feb 7 (Reuters) - Long-suffering investors in gold mining funds could be about to enjoy the benefits of a sustained bullion price rally, fund managers said on Monday.
Gold prices leapt $23 per ounce to their highest level in three months at $316.60 at Monday's official fixing amid rumours of strife in the bond market, hints of higher inflation and signs of strong global growth.
``There is going to be a very good recovery in a lot of the stocks, especially medium and smaller producers,' said Kjeld Thygesen, director of fund manager Lion Resource Management Ltd.
Specialist gold investors suffered through a long decline in the precious metel to a 20-year low of $251.70 last September.
Significantly the impetus for higher prices came from within the industry, investors said.
Late on Friday, the world's fifth largest gold miner Canada's Placer Dome Inc (Toronto:PDG.TO - news) said it was abandoning hedging its production in anticipation of higher gold prices and urged other producers to do the same.
On Monday, the world's largest gold miner AngloGold announced it was cutting its hedge book and North America's second largest gold miner Barrick Gold Corp (Toronto:ABX.TO - news) was expected to follow suit.
``The industry itself now seems to be taking a more positive view on the gold prices which was always missing in the past,' said Neil Gregson a gold fund manager at Credit Suisse First Boston Asset Management.
``I think Barrick really does have to say something that is positive for the gold price becasue if they come out and say they are going to continue to hedge as normal, then you will see a pretty big move in investors selling Barrack shares for (others) that have got some more leverage,' he added.
Hedging allows a company to guard against a fall in gold prices by selling future production at a fixed price. It can pay handsome dividends when confidence in gold is declining.
But it backfires when prices rise and its critics say it depresses spot prices by increasing the gold flow to the market.
SECOND-LINE PRODUCERS FAVOURED
Now, investors are positioning to take advantage of gold price could holding above $300 per ounce.
Thygesen advocated exposure to medium sized and newer mines like Kinross Gold (Toronto:K.TO - news) in canda and El Dorando (Toronto:ELD.TO - news) which operates mainly in South America.
``The majors lead the way because when the general funds want a bit of exposure, they have got the liquidity to get reasonably sizable amounts of money into,' he added.
Also putting pressure on gold prices recently were the eclipse of its role as a safe haven against world crises and inflation and central banks selling bullion from reserves.
But last September, gold stuttered back to life when the European central banks agreed a disposal programme of their surplus bullion reserves.
Gold has traded in wild swings in the past year, soaring to a high of $326.25 and a low of $251.70.
``If people are brave enough to have money in these volatile funds then the last thing they want is to see the gold price go up and them not to be participating,' said Graham Birch who runs the Mercury Asset Management natural resources funds.
Credit Suisse First Boston's Gregson saw the bullion rally typically taking time to spead through equities.
``The big liquid stocks will perform very well and some of the selected, well known names around the world that are bombed out will be marked up fairly sharply,' he said.
``I imagine it will be some time before the junior end of the markets picks up. Investors would be taking much less risk investing with the larger market cap companies,' he said.
On Monday afternoon, AngloGold shares were up 13 percent at 355 South African rand and in early trading in Toronto, Placer Dome had gained six percent at Can$16.60 and Barrick Gold was up nearly five percent at Can$27.70.
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