Merrill Lynch says its gold funds may rise as stocks decline
Bloomberg
July 12 2002 at 12:12AM
<<Tokyo - Merrill Lynch Investment Managers' top gold fund, ranked number two worldwide, might add to this year's 85 percent gain as a weaker dollar and falling stocks rekindled demand for the metal and shares in gold producers, it said yesterday.
Merrill's International Gold & General Fund has this year beaten all but one rival fund that invests in gold producers and has outperformed benchmark indices in Japan, Europe and the US.
South African miners such as Gold Fields and Harmony Gold Mining and Australian rivals such as AurionGold make up more than three-fifths of the $1.2 billion in Merrill's gold funds.
"We like to hold quite a lot of the South African producers such as Gold Fields and Harmony, because their profits will increase greatly for quite a small increase in the gold price,'' said Richard Davis, who helps manage the funds.
Merrill and some analysts expect the metal to rebound from the 4.8 percent decline since the early June peak, as supply falls and a weaker dollar spurs investors to look for a safe haven.
David Thurtell, who advises on commodities and currencies as an economist at Commonwealth Bank of Australia, sees gold recovering from the recent decline to as much as $335 an ounce. Gold recently traded at $314.75.
ABN Amro Holding last Friday raised its forecast for the average gold price this year by 4 percent to $317.10 an ounce.
It raised its forecast for next year by 5 percent to $315 an ounce.
Gold has averaged $302.5 an ounce so far this year.
Other South African holdings in Merrill's funds
are AngloGold, the world's third-biggest gold miner; Western Areas Gold Mining, which controls one of the world's biggest gold deposits; and Durban Roodepoort Deep.
The funds also own London-listed Randgold Resources, which has a mine in Mali.
AurionGold, which is fighting a $950 million bid by Canada's Placer Dome, is among Merrill's holdings that have benefited from a series of takeovers.
Gold mining companies have spent more than $10 billion on mergers and acquisitions since last year to cut costs and acquire reserves to increase output.
Newmont Mining became the world's biggest producer in February after it won a takeover battle with AngloGold, spending almost $7 billion to buy Australia's Normandy Mining and Canada's Franco-Nevada Mining.
"We expect mergers and acquisitions to continue because some of the larger companies have to maintain their resource base and for that they'll have to buy small companies,'' Davis said.
"That's because the gold price is too low to warrant exploration budgets to look for new ounces.''
Gold is having its best year since 1987, having gained 13 percent so far, as New York's Dow Jones industrial average lost 12 percent and London's FTSE 100 index fell 17 percent. Tokyo's key Nikkei 225 stock average has gained 0.5 percent this year.
According to Bloomberg data, Merrill's top fund outperformed all rivals in its category barring the Sicav Placeuro Gold Mines fund managed by Sicav Placeuro Conseil, which has gained 91 percent in euro terms.
US-based Van Eck International Investors Gold Fund, which has returned 83 percent this year, is ranked third as at Wednesday.
Merrill's World Gold Fund increased 80 percent this year, and its two Japan-based funds, holding '22 billion (R1.9 billion), have returned as much as 64 percent this year.
The price of gold halved since 1980 as an eightfold rise in the Standard & Poor's (S&P) 500 index helped convince investors that US securities offered better returns. This year the S&P has fallen 20 percent while the dollar lost 11 percent against the euro, encouraging investors to seek gold as a safer investment.
A stronger euro makes gold, which is sold in dollars, cheaper for European buyers. There was also a correlation between a stronger yen and higher gold prices, as a stronger Japanese currency made gold cheaper for Tokyo investors, Davis said. The dollar has lost more than 10 percent against the yen this year.
Violence in the Middle East, concern about terrorist attacks in the US after September 11 and accounting frauds at Enron and WorldCom have spurred the search for a haven.
Gold prices were also driven higher this year by mining companies buying back some of the 500 metric tons of metal they had sold in advance in 1999 to lock in prices as gold dropped to a 20-year low of $252 an ounce, Davis said.
Demand had increased as a result of the closing of forward sales by the companies, he said.
"It represents a major shift in the psychology of the mining industry,'' Davis said.
South Africa's physical gold production last year fell to its lowest level since 1954, curbing supplies of the metal.>> |
