Hello Gord
***OFF TOPIC***
I received a few e-mails last week in follow up to the posts about any recession's effect on gold and diamonds/miners.
This article in Reuters yesterday may therefore be of interest to some.
Regards
**********
Gold producers offer cautious optimism for future
Reuters Story - October 06, 1998 21:09
By Paul Simao
DENVER, Oct 6 (Reuters) - The world's largest gold producers will be breathing a little easier when they gather this week in Denver amid signs that investors no longer view gold as a four-letter word.
Written off during the past year as an investment with little upside, the yellow metal has made a respectable comeback after weathering its worst crisis in two decades and trying the patience of even the most fervent gold bugs.
Gold has stabilized close to the psychologically important $300-an-ounce level after it spent much of the summer plumbing the depths near $270 an ounce.
It traded at $296.00 an ounce on Tuesday.
Traditionally viewed as the ideal hedge, or safe haven, against political crisis and inflation, gold relinquished that role during the past year as it snapped through a series of record lows despite rising turmoil in emerging markets.
Gold staged a short-lived rally late last year after Asian currencies were sharply devalued, but it was a momentary reprieve as investors soon deserted bullion in favor of the U.S. dollar and U.S. dollar-denominated securities.
Gold's fall from grace was heightened by the sale of hundreds of tonnes of bullion by central banks in Europe, Asia and Australia.
A year later gloom has given way to guarded optimism as industry insiders prepare to gauge gold's future at the Denver Gold Group's annual conference.
"There's certainly a lot more hope and a feeling of rejuvenation that we've had over the last few weeks, but people do realize that we're still in a difficult period. I think $300 (an ounce) gold is not exactly a cause for celebration," said Douglas Cohen, an analyst with Morgan Stanley Dean Witter in New York.
Analysts now generally forecast gold will hover around $300 an ounce for the remainder of 1998, rising to $325 an ounce next year.
Gold's modest make-over is inextricably linked to a weaker U.S. dollar. The U.S. currency, the world's undisputed safe haven of choice, has strengthened in the past year as panicky investors have fled turbulent international markets in search of a secure place to park their money.
The rush to hold U.S. dollars spelled disaster for gold.
The vast majority of gold purchases occur outside the United States. Gold, however, is denominated in U.S. dollars and every uptick in the U.S. currency makes it less affordable than it once was in traditional markets such as India.
The rage to buy U.S. dollars softened last week when the U.S. Federal Reserve cut interest rates in a bid to offset the impact of a global economic downturn on the U.S. economy.
The U.S. dollar fell and gold soon touched $300 an ounce.
"If you're thinking about the No. 1 most likely catalyst for an improved gold price environment, weakness in the U.S. dollar would be the one," Cohen said.
A sudden plunge in the value of equity markets, prompted by fears that financial turmoil in Asia and Russia, will soon spread to the Americas, has added to investor jitters.
The Dow Jones Industrial Average has shed about 11 percent of its value in the past two months, while London's FTSE index has declined 17 percent. Tokyo's Nikkei 225 average is down roughly 18 percent during the same period.
"People are getting hurt in the equity markets and they are looking for other places to put their money and obviously gold is getting some attention," said Daniel McConvey, an analyst with Goldman Sachs & Co. in New York.
Keenly aware that a bear market may be fast approaching, investors have gravitated to safer investments, such as certificates of deposit and bonds. Some are taking a close look at temptingly cheap gold stocks.
Holding gold during a global economic downdraft has more than a shred of basis in history. The shares of major gold mining producers, San Francisco-based Homestake Mining Co. , for instance, jumped more than 700 percent during the 1929 stock market crash, a time when most stocks declined 90 percent.
This time it is Canada's Barrick Gold Corp. and Denver-based Newmont Mining Corp. , which appear to be poised to capitalize on a sustained gold rally.
Barrick's shares have soared to C$32.50 after touching a 52-week low of C$20.10 in August.
Newmont, North America's largest gold producer, traded at $28.12 a share on Tuesday, up from about $13 a share five weeks ago.
Analysts, however, warned the current enthusiasm for gold could implode as fears of increasing gold production out of Australia, Canada and South Africa and concerns about the fate of Russian gold reserves overtake investors.
Russia's central bank could sell some of its gold reserves in a desperate bid to extricate the embattled nation from its profound economic crisis.
($1=$1.56 Canadian) |
