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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: Ahda who wrote (60615)	11/6/2000 4:06:25 PM
From: Alex	Read Replies (1) \| Respond to of 116790

Optimists still go for gold, gold, gold Nov 7 Bruce Hextall Gympie Gold managing director Mr Harry Adams says you wouldn't be in the gold business if you were not an optimist. Like the managing directors of nearly every Australian gold company, Mr Adams says the gold price, now trading at $US265.50 an ounce or $A502/oz, has more risk on the upside than the down. That's despite the precious metal last week slumping in US dollar terms to its lowest level in 14 months - $US263.80 - and failing to make much of a recovery since then. "I'm confident that the gold price will go up, but its timing is in the lap of the gods," Mr Adams said. The driving factors behind a price rise would be the US dollar retracing the massive gains of the past year, and reduced central bank selling. "The US gold price is being driven by currencies, but the Australian dollar price is very good for producers," he said. While solid hedging positions mean the local gold industry has missed out on the full benefits of the $A's plunge, the currency depreciation has allowed some companies to rejig their hedging positions. In Gympie's case, it has recently hedged about 50,000oz a year at about $A560 an ounce. That is a reasonably high level of hedging, given that that the company will only hit annual production of 100,000 oz at the end of next year following the development of a second mine at Gympie. But it is sensible hedging, according to Mr Adams. He says Gympie's view is to protect the downside while positioning the company so that it is well leveraged to an improvement in the $US gold price. "It's a matter of looking after the grocery shop and trying to put a few bits of fruit on the table until that happens," he said. In Gympie's case, putting fruit on the table has meant looking for new business opportunities outside the traditional gold market. Key among these is an attempt to market high-grade gold found in the historic Gympie goldfield's so- called "jewellers' shops" where visible gold exists in white quartz within the underground workings. Earlier this year, Gympie formed a joint venture with a major US jewellery manufacturer, Kabana Inc, to develop the "Gympie Gold-Quartz gemstone" which Mr Adams said could develop into a $5 million- a-year business for the joint venture partners. While everyone in the gold industry remains a bull, just about everyone outside, including analysts and funds managers, are definite bears while the $US hangs onto its mighty gains. "It is all currency-driven. Until the US dollar weakens, there is not much hope for the gold price," Commonweath Bank commodity strategist Mr David Thurtell said. "I expect as the US dollar weakens that should assist the gold price, but we're not talking records here, just the possibility of it recovering to around $US300." Even that level might not be reached because of the possibility that any recovery in the metal's price could be capped by a fresh round of producer forward selling. The producer forward selling has been restrained this year after miners pegged their hopes on last year's Washington agreement between 15 central banks not to increase the level of gold reserves and restrict their gold lending activities. Despite the agreement, central bank selling this year could reach the highest level since 1968, with about 630 tonnes of gold reserves finding its way onto the market compared with forecasts of 430 tonnes. "In 1999 there was a lot of forward selling but this year the producers have pulled back. It seems the central banks have stepped in to take their place," Mr Thurtell said. "Eventually, the market should turn as above-ground reserves are reduced unless mining output responds." Mr Thurtell said this was becoming increasingly unlikely because of cutbacks in exploration expenditure. Macquarie Bank gold analyst Mr Paul Carter says his firm believes there is not much chance of the gold price recovering from its downward trend because of the US dollar and apparently an abundant supply of the metal on world markets. "The North American producers are negative about the market," he said. That compares with the confidence that swept the market in early February when a number of major producers came out with statements of their intention either not to hedge or to hedge less, believing that all signs pointed north. Mr Carter said the best thing that could happen to the gold industry was possibly another slump in the gold price to shake out high-cost producers. "A lower price could force out the oversupply situation which would be ultimately good for the industry." The Macquarie Bank analyst said a switch in preference from gold to platinum jewellery in the southern Chinese market was also affecting the market. Macquarie's London-based gold analyst, Mr Kamal Naqvi, in a recent report estimated that as much as 1 million oz, which is absorbed by that market annually, could be affected by the white metal becoming more fashionable. -------------------------------------------------------------------------------- afr.com.au