if it walks like a bull, and talks like a bull, then a bull it is
Why gold regained its glory
Friday's price was the highest in two years. And, reports Andrew Donaldson , the good news is that the recovery is no flash in the pan
Have gold's yellowing and lacklustrous fortunes been reversed? Yes. Ja. Yebo.
Whichever way you say it, it is a common enough sentiment.
Gold Fields president and chief operating officer-designate Ian Cockerill put it this way at the Paydirt Conference in Perth in March: "As they say in the movies, if it walks like a bull, and talks like a bull, then a bull it is."
Gold Fields this week reported, for the second successive quarter, that it had generated record net earnings: for the March quarter, earnings were R1 049-million - 64% higher than the December 2001 quarter's R640-million.
Underpinning the global mining house's growth - market capitalisation has risen to R64-billion from R7-billion four years ago - is the forthcoming transfer of its listing, on Thursday, from the Nasdaq to the main board of the New York Stock exchange.
Cockerill's bullishness was echoed by other mining groups this week. Harmony reported record earnings and output for the quarter.
Anglogold's chief executive Bobby Godsell is positive gold will hold onto its current prices - Friday's $312 per ounce was a 26-month high - and the group is reducing its hedge book dramatically. (Miners hedge or sell forward output to lock in prices as a protection against price falls. They lose out, however, if prices rise above those that have been contracted.)
Gold and the US dollar, the saying goes, enjoy a counter-cyclical relation: dollar strong, gold down; dollar weak, gold up. But it is perhaps simplistic to attribute gold's good fortune only to the plight of the US dollar - which has lost clout over other currencies.
In an interview with Business Times, Cockerill points out that Gold Fields's share price has risen from "about R30 to R130" since March last year and that its market capitalisation has soared in a matter of years. "It takes more than currency fluctuations to achieve that."
The big question, though, remains: How long can it last?
"You may as well ask, 'How long is a piece of string?'," says Cockerill. Vague answer and probably a stupid question - but then he did suggest the dollar's recovery was still a long way off.
"There was a time when people spoke of gold as a barbarous relic, that its time was over."
That was just two decades ago, but, as he points out, gold has been viewed as a safe haven, an insurance asset, if not the only insurance asset, for two millennia. "Two thousand years of history is not wiped out within two decades."
But the price of gold did decline in two decades - from a high of $800 to well below $300.
Look at that decline in context, Cockerill suggests, which could be symbolised by two events - both taking place on September 11. The first was in 1989, when the Berlin Wall was torn down, and the second last year, when the World Trade Centre was hit.
"What followed [the Soviet Union's collapse and the end of the Cold War] was a new world order with the US assuming the mantle of lone superpower, imposing on the world its version of global stability, peace and prosperity. Any threats to this new order were dealt with in a surgical and clean manner. "
The Gulf War, he points out, was an example of "how the world was managed" during an era in which "the mighty dollar ruled supreme against all other currencies, including gold".
The decline of gold as a reserve asset was, therefore, "hardly surprising".
But last year's attacks on New York revealed the cracks in this "new world order" - cracks largely ignored. In Cockerill's words: "Virtually undetected and very gradually, over the past four or five years, a new uncertainty has crept into global affairs."
Global economic uncertainty came first in Asia, then Mexico, then Argentina, and now Japan. Conflict is escalating in the Middle East. China's march to superpower status, to rival the US, continues unabated. Violent opposition to globalisation is growing dramatically. The spectre of global terrorism has emerged.
Cockerill: "We are no longer a world at peace with itself. We are a world in conflict with many faceless enemies who are hard to identify or pin down."
As a result of all this uncertainty, producers have seen an upsurge in interest in gold from retail investors.
And despite the fact that demand outstrips new mine supply by more than 1 000 tons a year, the market is comfortable that supply deficit can be serviced from new mine supplies, supplemented by Central Bank sales and producer hedging.
Cockerill points out that there has been very little investment in reserve replenishment or exploration since 1997. But a higher gold price, on a steady fixed course, could address that.
Expecting a boom, the world's dormant lodes are being retapped. Gold Fields is reassessing its once unviable Libanon mine.
The World Gold Council recently announced a $200-million, or R2.1-billion, international advertising campaign, fashioned after De Beers's diamond marketing, to add a further lustre to gold's appeal - both as jewellery and as an investment.
The council, headed up by Gold Fields chairman and outgoing chief executive Chris Thompson, will soon be unveiling a new securitised bullion instrument, tradeable through the regular channels, which will make it possible for investors to buy and hold physical gold.
And that, Cockerill will tell you, is far more reassuring than holding onto a piece of paper.
sundaytimes.co.za |
