New shine on gold
By ADAM TURNER
ROYAL dynasties rose and fell, empires were founded and turned to dust, but for thousands of years the security of gold remained a constant in an ever-changing world. The precious yellow metal has lost much of its shine in recent years, yet analysts predict bullion will regain some strength in 1999 and expect it to fetch around $US320 an ounce before the year is through.
A survey of stockbrokers from Western Australia, the home of many of Australia's big gold producers, found gold was still the commodity they expected to attract the most investor attention this year - ahead of oil, gas and nickel.
''The price in Australian dollar (terms) is still profitable and as producers are close to speaking with one voice (through the Australian Gold Council) and production is falling slightly, the price should rise,'' said a William Noall director, Geoff Sansom.
Gold has endured a tough 12 months, struggling to break through and sustain levels above $US300 an ounce. Last night it was trading at $US287.92, after sinking to a 19-year low of $US274.75 last August. An average of brokers' predictions puts bullion at $US320.50 in 12 months, just $US7 above a similar forecast 12 months ago, with the most bullish estimates seeing gold ending 1999 at $US350.
Ron Bennetts, a director at J.B.Were & Son, would not look 12 months ahead but said he expected gold to touch $US330 during the year.
''We are not getting carried away with the price rise ... we believe most commodities will have a tough time in 1999,'' he said.
Eastern seaboard analysts are less optimistic concerning gold's fate over the coming year. Gold will struggle to see a return to its previous heights, said a Hartley Poynton senior investment adviser, Ian Parker. It should trade between $US285 and $US305 an ounce over the next 12 months, he said, as the days of people turning to gold as a bullet-proof investment in times of trouble are over.
''Years ago, there was a theory that during times of war and depression, people turned to gold,'' said Mr Parker. ''The Gulf War in the early 1990s sort of dissipated that and ever since then the gold price hasn't really moved in relation to these things.''
Gold prices had recovered slightly in recent weeks, rising more than $US5 an ounce since late December, before shedding most of those gains yesterday.
''There's been talk about a fund liquidating in the US that was very short in gold positions and they would have to be covering those short positions. The feeling was the gold price would rise in anticipation, and that's exactly what has happened,'' said Mr Parker.
''It will correct upwards a little bit and then probably ease back,'' he said before yesterday's drop. ''There doesn't appear to be a lot of fundamentals that are positive for the gold price at the moment.'' A Rothschild Australia gold analyst, Elizabeth Addis, said gold might reach as high as $US310 over the next 12 months. She sees the threat of central bank gold sell-offs as a key price influence.
In 1997 gold prices plunged 22 per cent as Australia and Argentina announced the sales of most of their reserves. Last December, Switzerland - the third-biggest holder of gold after the United States and Germany - agreed to cut the link between its national currency and gold reserves, and is awaiting a referendum to give the go-ahead for its central bank to unload its gold on the open market.
Concern surrounded the European Central Bank's intentions on gold, but recent comments by the vice-president, Christian Noyer, indicated the bank would hold on to its gold reserves.
The ECB's bullion holding is less than half that of Germany or France, and only 12 per cent of that held by the US Federal Reserve, yet any change in its gold policy could create expectations that other banks may follow suit.
''We expect to see very little gold coming out of the EU this year ... their focus is on getting the euro up and running, and they need a stable environment for that,'' said Ms Addis.
''The Swiss will have their referendum on gold sales this year but the earliest they could really sell is 2000. They're really the big holders of gold, along with the US, and there's no sign the US will be selling.''
A National Asset Management gold analyst, Richard Fish, also sees central bank moves as a major price influence and is ''reasonably optimistic'' gold could rally to more than $U300 in the coming year, but not much higher.
''Perhaps the worst of central bank intervention in the market is behind us and there may be some more positive factors arising from lower interest rates and a slightly more positive disposition towards commodity related sectors,'' he said.
''Still, there's a suspicion the individual central banks may sell gold at some stage. There's also talk the IMF could sell gold and that would have to be a reasonable possibility.''
Unlike Mr Parker, Mr Fish and Ms Addis said gold was still used as a secure investment during economic instability, citing the Asian crisis as an example.
''It reinforces the role of gold to people,'' said Ms Addis. ''When their currencies had fallen in a heap, the one asset they held which really maintained its value was gold.''
In support of this, recent figures revealed 100 tonnes worth of gold jewellery and other items worth $2 billion were sent to Australia from the Asian region last year to be melted down - the bulk of it arriving from the economically battered South Korea, Indonesia and Thailand. Overall, more than 1000 tonnes of gold flowed into the world market in 1998, mostly from East Asian countries, according to Gold Fields Mineral Services. This influx into the market offset possible price rises due to the decreasing growth rate of gold production from the world's mines, which rose 2.3 per cent in 1998 to 2529 tonnes.
The decrease came as mining companies worked to reduce production costs - which also in turn makes gold cheaper - as the average cash costs of production dropped to about $US210 an ounce during January through to September, and below $US200 by the third quarter.
Asia's economic woes have had mixed consequences for gold prices, with analysts speculating that fear of collapses in the Japanese banking sector could see investors turn to bullion for security, while a weaker yen makes gold more expensive in Japan, thus reducing demand.
In gold's struggle to regain some of its former glory, the precious metal could find support from the unlikeliest of allies in the Millennium Bug.
A recent research paper, by the US group Morgan Stanley Dean Witter, claimed the Millennium Bug could have a positive impact on the gold industry by sparking panic buying back into bullion as a safe asset during Y2K uncertainty.
The paper said gold coin sales in 1998 had increased vastly over previous levels, with many buyers citing Y2K as a key motivating factor. Third-quarter gold sales in 1998 in the US were 50.3 tonnes, a 133 per cent jump above the first nine months of 1997.
''Gold has proven itself to be a reliable store of value against unexpected economic and political instability for thousands of years,'' the paper said. ''Perhaps Y2K will provide gold with another chance to regain its traditional lustre.'' with THE WEST AUSTRALIAN and AAP
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