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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (22174)	1/25/2005 7:27:11 PM
From: RealMuLan	Respond to of 116555

JP Morgan punts gold By: Allan Seccombe Posted: '24-JAN-05 18:00' GMT © Mineweb 1997-2004 JOHANNESBURG (Mineweb.com) -- The long-term key driver for the gold price, apart from increased demand from China, will be declining production amid a depletion of assets from the world’s main production regions, analysts from JPMorgan believe. “We believe that the larger driver for gold prices is the coming decline in gold production that we forecast,” JPMorgan says in an 80-page base and precious metals report released on Monday. The firm points out that gold output was falling in South Africa and North America, and that while Australian output is being lifted by the Telfer development: “we think it is likely to report falling production from 2005.” JPMorgan estimated that the gold price would average $435 an ounce in 2005, rise to $450 in 2006 and reach $448 in the following year. Gold production is expected to be fairly stable in 2005 compared to 2004, not factoring in the volatility caused by problems at Grasberg. “We are not suggesting that supply pullbacks alone can drive a bull market such as that seen in the 1970s, but we would argue that falling supply has prepared the ground, now we await the arrival of the next catalyst!” China has yet to catch up to the sophisticated gold market in India, but JPMorgan sees “huge potential” in one of the world’s fastest growing economies now that the state has relinquished its control of the gold market. “We believe the best is yet to come from China as the growing middle class increasingly moves from buying essentials to buying luxury goods,” the report said. China would not only play an important role in consumption but could be a major supply factor, it said. “Another approach to exploration is to take modern techniques to areas which have not been explored properly before. This is having some success in the former communist block and China. This region is, in our mind, the only one that can possibly slow or reverse the decline in gold production elsewhere.” However, there are ownership uncertainties in both regions and production would be coming off a low base. There are also legislation concerns in South Africa, the world’s largest gold producing country, as in South America, where governments are proposing or have introduced royalties on mining companies. Legislation is not the only hindering factor for gold miners. There is also shareholders’ unfavourable attitude towards hedging, which provided access to project capital in the past. “In the past, heavy use of forward sales increased the level of project finance and boosted rates of return. Now that investors are asking for reduced use of hedging, this must require bigger use of shareholder equity,” the report said. mineweb.net