Heavyweights upgrade gold; more to follow
m1.mny.co.za
JOHANNESBURG – US investment bank Goldman Sachs is the first in what is likely to become a stream of institutions taking a more bullish stance on gold. Goldman's said yesterday it had upgraded its price expectations for this year from $285 to $300 an ounce.
The bank expects gold to stay relatively flat at $300 an ounce until the end of next year, before ticking up to $325 an ounce in 2004.
"The underestimation of the power of low US interest rates, Japanese investment buying, and higher than expected Middle East tensions are the three main drivers of our 2002 forecast and for recent gold price strength," said the note from Goldman Sachs.
A senior Johannesburg-based gold analyst shares the optimistic outlook for the metal and expects the gold price upgrades to continue, as global banks see the current strength in the dollar gold price persisting. "Our forecast is around $290 an ounce for this year and I think we will be wrong … the longer the gold price stays at these levels or higher, the more hedged producers are going to sweat. That will force [hedge] buy backs which will keep the price up," said the analyst.
The bullion trader
Stuart Leslie, chief bullion trader at Standard Bank in Johannesburg, says that while it has become apparent that gold has found a higher trading range, its chances of breaking out above $300 an ounce over the next month or two are slim. Leslie is reluctant to give a long-term view on the bullion price, but says the state of the Japanese market still has a major role to play in gold's fortunes.
"Japanese investment in gold could still be huge if there is systemic risk in Japan, but we'll first have to see how the government deals with that," said Leslie. "There are real reasons why people are bullish on gold … they need to go back to basics and that means going back to gold."
Leslie adds, however, that once the metal breaks through $300 an ounce, funds that went long at appreciably lower prices are likely to liquidate their positions, keeping a lid on the price. "There are some real scares out there but we need something stronger – something serious – to push the price much higher," said Leslie. He would not comment on the level of catastrophe required to cause a spike in the price.
The analysts
Fidelis Madavo, precious metals analyst at Investec in Johannesburg, is similarly unconvinced that gold will break out of its current trading range.
Madavo says the current bullion price has factored in much of the bad news which is likely to transpire on the macroeconomic and political fronts. "Most of that paranoid buying has been done and most of the producer hedge buy-backs are in the price now," said Madavo, highlighting rising inflation, the Middle East peace crisis and the resulting higher oil prices as chief concerns fuelling a global "paranoia" and the resultant flight to gold's safe haven qualities.
Madavo says the continued probability of a strong recovery in the US economy will keep the dollar strong, which in turn is likely to suppress the gold price. "We can't deny that the environment has changed to higher prices, but we won't see a spike in the price," said Madavo.
The fund manager
Piet Viljoen, chief investment strategist at Investec Asset Management in Cape Town, says there still appears to be room in the gold price for upward movement.
"The technical picture for gold looks like it is turning, but that is going to be a long process. There are huge vested interests in keeping the gold price lower; a lot of producers can't afford for the price to rise too much," says Viljoen.
Viljoen has a novel way of rating the gold price relative to equity markets, simply by dividing the Dow Jones Industrial Average by the gold price. "The gold price relative to other financial instruments is pretty cheap at current levels, the Dow can buy you 34 ounces of gold," said Viljoen.
Viljoen says in gold's heyday, in the 1970s, the Dow would buy close to a single ounce of gold, while at its worst level in 1999, the index would fetch around 50 ounces. He believes the trend will head back toward a long-term average through a combination of a weaker Dow and a firmer gold price. |
