how much gold, page-3

Gold rush

GOLD fell on Friday with profit-taking but there will be further surges. So it is a metal to keep on the agenda.

Shayne McGuire, director of global research at the $US115 billion Teacher Retirement System of Texas, has a book coming out in the US from publisher John Wiley & Sons called Buy Gold Now.

The arguments are persuasive (the plight of the dollar, the huge US national debt, the real estate bust) but there is an interesting conclusion. McGuire is a bull and thinks $US10,000 an ounce is not out of the question, but there is a danger in such an overshoot.

But then, he says, once monetary order is re-established after a currency collapse, "gold and silver will stop being investments promising strong returns and go back to being essentially refined and shaped rocks, as they should be".

That is a long way off, so we should note that Allied Gold will be producing its first yellow metal this month from the Simberi project in Papua New Guinea. The company has hedged 170,000oz at $US700/oz for delivery through to 2011, but does get the upside of any price above $US700 on only 68,000oz of that total.

Meanwhile, 53km south of Charters Towers, North Queensland Metals has had its first gold pour at its 60 per cent owned Pajingo mine (the balance is owned by Heemskirk Consolidated). The mine is expected to produce 62,000oz a year and here's the good news: NQM has no gold hedging so it will be fully exposed to the spot price.

Drummond Gold, which listed in December, has seen its share price take something of a pounding. While it is at least a year away from production, Drummond already has a JORC resource of 272,000oz at Mt Coolon, inland from Mackay. None of that would yet be hedged.

A final thought for the gold bugs. Adrian Day, who runs Queensland Gold & Minerals, has a theory that posits that if every Chinese female acquired half an ounce of gold - putting them on the same basis as the average for women in India - that would total 7500 tonnes. If the period required to reach such affluence were 20 years, that would mean that the global mining industry would need to produce another 350 tonnes a year - starting now.

Which, on present evidence, it could not.

Back in the 1950s, Australian sheep farmers dreamed that if each person in China bought one pair of woollen socks their problems would be solved. Well, there was no evidence that everyone in China actually wanted woollen socks, but all the signs are that they would grab the gold.

One day in January, the Caishikou department store in Beijing sold two tonnes of the metal in less than two hours.

The Australian implies no recommendations regarding any of the stocks mentioned. The author does not own shares in any of the securities mentioned.

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