Jessica Cross interview. Transcript.
business.iafrica.com
WORLD AT SIX, OCTOBER 30
Where is gold going?
There has been a stern warning that demand for gold will slide in the near future. Virtual Metals CEO Jessica Cross explains.
Bruce Whitfield:
Well a word of warning today on the gold price, the metal over the weekend hitting $600 an ounce and this evening going towards $610 and there is a stern warning that the gold market could move into a surplus next year as demand slides. Jessica Cross is the chief executive of Virtual Metals and joins us on the line from London now. Jessica nice to have you on the programme, you are expecting a drop-off in demand for gold next year, what do you base that on?
Jessica Cross:
Well, we actually were looking for the drop-off in demand this year, which in fact has happened, but what we are saying is, jewellery consumption will probably recover because you are looking at lower prices already. We are looking at the markets moving into surplus for a number of reasons, we are looking to primarily a decline in dehedging on the basis that a lot of the dehedging that could have been done, already has been done and for that reason, you have got an effective demand side of the decline demand downward not quite being supported as it has been before. We are also looking at slightly less coming into the ETS that we did in 2006.
Bruce Whitfield:
Now the ETS that you refer to of course are the exchange traded funds and they have been fairly big consumers haven’t they?
Jessica Cross:
They have, they have; and our report will give you the totals of the numbers and they clearly are a force to be reckoned with in the market. But bear in mind that they are a product designed to be traded, people come in and can come out and we are not ringing alarm bells by saying less gold is going to the ETS we can see that, we are saying that this is a normal part of a product being used appropriately and in the way it was designed.
Bruce Whitfield:
What has been driving the demand for exchange traded funds? We had gold at relatively low levels and when exchange traded funds were launched, they have had a very, very good run. Is it that the consumer appetite for ETS is not quite what it was a year or two ago?
Jessica Cross:
I think it has been a product launched into a very appropriate market. It has been there at the right time and geographically it has been right as well. So a number of people who were looking to come into gold and might not have wanted to go the coin route or the hedge fund route or the equity route had a product to come into and make use of. So I think it has been tremendously successful from that point of view and I don’t see why it shouldn’t continue so.
Bruce Whitfield:
We saw gold in May hit $730 an ounce, it pulled back quite sharply recently. It is on a bit of a recovery today, which is nice to see, but that $730 in May, was that just a short term anomaly you are not forecasting a return to those sorts of levels if anything, you are saying $570, $580 is more likely as an average price for next year?
Jessica Cross:
I think the $600 level is probably going to be quite well supported over the next six months, and then depending on what happens there, we are forecasting, and maybe it is less volatile, you are going to see the decline in balance come more into what we would perceive as a normal level and the price ease up a bit. But even at $575, for South African mining companies where the rand is today, it is still a jolly good gold price.
Bruce Whitfield:
And as we see though in the results from AngloGold today, and from Gold Fields last week, their cost levels are rising quite sharply as well, so although the gold price in dollar terms may look attractive, cost levels are a big problem for the mining sector.
Jessica Cross:
Indeed and costs are really a very big problem and I think the gold mining companies have got two problems, they have got costs, but they have also got the pressure of replacing reserves because if you are mining at a rate of three million ounces a year, you have got to keep finding another three million to keep standing still and I think that is a priority for the mining companies is to replace those reserves.
Bruce Whitfield:
And from your perspective, are many of them being successful in that sort of game at the moment?
Jessica Cross:
Well I think it is becoming increasingly more difficult. You have seen a lot of exploration into the price value. You have seen a lot of the juniors being launched particularly in the American exchanges, these companies are now looking for funding. But what they have found tends to be small, there has not really been one major find. And one would expect in the next 18 months is a consolidation of these juniors. But from a reserve placement, it is tough, it is very, very difficult.
Bruce Whitfield:
Jessica Cross on the line to us from London, thank you very much indeed, the chief executive of Virtual Metals giving us a view on the gold price saying even at $575 an ounce, it is a very good gold price and it is nice and strong, but we are going to be talking to AngloGold in the second half of the programme, and no doubt there they will express the same worries that were expressed by Gold Fields last week, the cost levels are rising and rising quite quickly, especially in rand terms, as you have got a depreciating currency, yes you may get more rands for the gold, but then input costs like steel, timber, commodities like that which are prices in some cases in dollars, of course then that has a higher impact there as well. . |
