re: 504.30 over 510 tonight? /phillw Posted: 2005-12-02 23:58...

re: 504.30 over 510 tonight? /phillw Posted: 2005-12-02 23:58

GFMS expects gold to go higher

Presenter: Lindsay Williams Guest(s): Philip Newman

The week the gold price reaches $502.80 an ounce in Far Eastern trading early in the week, only to retrace. In true bull market fashion the gold price then reaches $506.50 an ounce, and GFMS analyst Philip Newman in London expects it to go higher still

LINDSAY WILLIAMS: Philip, this latest gold price spike is flying in the face of a strong dollar - the dollar hanging around 1.17 to the euro – so it’s ignoring currency factors. What do you think is behind it this time?

PHILIP NEWMAN: You talk about the currency factors, and I think for quite a while now it has been ignoring those - if you go back to when the gold price rally got under way in a significant fashion back in September 2005 - that’s when we really saw that relationship start to break down in a serious fashion. Gold was moving up and the dollar was moving up - I think what that tells is that we are seeing a significant rise in investment coming into the markets.

LINDSAY WILLIAMS: So it is investment demand - who’s buying it? Which geographical area, first of all?

PHILIP NEWMAN: I think you could say that it’s pretty much Europe and North America - especially North America out of the hedge funds and trend followers as well. I think in other markets we’re seeing some of that, but these prices are fairly high for price-sensitive markets, so it will be more out of Europe and North America.

LINDSAY WILLIAMS: We saw it with the oil price - a lot of the hedge funds and big speculators pushed the New York Mercantile Exchange open interest to record highs – are we seeing the same sort of thing on the commodity exchange in New York? Are futures and options open interests burgeoning because of the speculative nature of this rally?

PHILIP NEWMAN: I think for a couple of days we’ve seen some incredibly high levels, and if you look at the data from the Commodities and Futures Trading Commission (CFTC) we’ve seen a similar level. The latest data, although the net long is not a record level, it’s pretty close to that - I think the core net long is still at an aggressive very high level in itself.

LINDSAY WILLIAMS: Beneath that, apart from that speculative aspect that’s inevitably going to make the market volatile - vulnerable to sell-offs and spikes - is there an underlying fundamental demand for gold from oil-rich states, oil-rich investors, from the Chinese and people worried about inflation?

PHILIP NEWMAN: There are two different areas there that you touched on not only I think in the Middle East, but also in other price-sensitive markets - India and parts of East Asia. At these levels they would have come out of the market, but more importantly we now have an excellent base for the gold price to move up. If you look at the beginning of the year gold was around the $427 dollar level. That told us there was a very good base around the $390s. This year it’s moved up tremendously, and it’s now around $460, and perhaps even in the $470 level in the jewellery buying parts of the market. But as you pointed out there are also those parts of the market buying gold because they’re concerned not only about inflation picking up, but also about global threats of terrorism as well.

LINDSAY WILLIAMS: So we’ve got political risk, global inflation maybe picking up - the demand side is well taken care of and people seem to love gold at the moment - what about the supply side? In South Africa we are looking at gold production falling to multi-year lows where it’s something like 80 years since we last produced as little gold as 2005 - what about the rest of the world? Is there a bit of a supply squeeze?

PHILIP NEWMAN: I’m not sure I would go as far as saying that - I think the latest data we have come out with does show that production has really been ticking along. The latest data we came out for the third quarter of 2005 shows a marginal increase of around 3%, but at levels around the $500 mark a number of companies will be re-evaluating projects that were put on hold, but as you can imagine it will be some time before they come on stream.

LINDSAY WILLIAMS: What about the consolidation in the mining industry? We’ve recently seen Gold Fields snapping up South American producer Bolivar, and there’s all sorts of rumours surrounding AngloGold Ashanti. As gold mining falls into fewer and fewer hands do you think there’s any chance they will get together and lift hedges and move the price up to benefit from higher prices?

PHILIP NEWMAN: I think from a hedging perspective there is still some way to go, and that we will see the net de-hedging continue. I think a number of shareholders - when they see the gold price at these levels - are keen to realise those prices. So for the mining companies to return to hedging - I think that’s some time away. Of course for one or two new projects there is some hedging being put in place, but I think it’s still very modest.

LINDSAY WILLIAMS: The gold price at the moment is holding above $500 dollars an ounce, and has been for most of the day – when I spoke to GFMS two or three months ago this was the sort of target you were looking at - does this latest spike mean you’ve revised your targets a little bit higher?

PHILIP NEWMAN: I think if you spoke to us two or three months ago we were saying in the first half of 2006 gold should touch $500 - we were about six months out on that one, along with the rest of the markets! Very much so - we are looking for gold to move higher, and I think there is every chance being at 22-year highs that we could quite easily see gold move up to 24-year highs over the coming months.