THE bleak outlook for global equity markets has boosted the value of a traditional safe-haven investment: gold.
The gold price has risen from $US746 an ounce to $US868 an ounce in the space of a week, as investors continued to pull money out of the financial sector.
Even before the metal's big run in the past week, gold had performed strongly in Australian-dollar terms as the value of the local currency weakened rapidly against the US dollar.
On Wednesday, the Australian dollar gold price topped $1100 an ounce - higher even than its peak price in March, when the US dollar gold price had reached more than $US1000 an ounce.
Local goldmining stocks yesterday benefited from the strong gains in the commodity price. Newcrest Mining closed $3.11 higher at $24.50, Lihir Gold closed 34c higher at $2.48 and Sino Gold Mining closed 80c higher at $4.35.
All three miners have eliminated their hedge-books over the past 18 months, meaning their investors enjoy full exposure to a rising gold price. But although the gold price has risen strongly this year, so have production costs.
The South African miner Gold Fields recently estimated that the average global industry cost of production - including cash costs, exploration costs and depreciation and amortisation - is now $US780 an ounce.
Junior Australian goldminers have had a particularly rough time this year. Monarch Gold entered administration, Crescent Gold suspended operations at its Laverton project and just this week, the Canadian-listed GBS Gold's Australian subsidiary entered administration following problems at its operations in the Northern Territory.
"Costs have been rising generally within the industry, and it's probably fair to say gold prices have not risen as fast as other commodities," said an analyst with Fat Prophets, Gavin Wendt. "Margins worldwide have been under pressure."
Having recently returned from the annual Denver Gold Forum, the chief executive of Kingsgate Consolidated, Gavin Thomas, said the industry consensus was that a gold price of at least $US850 to $US900 an ounce was required to recover costs and encourage new mine investments.
"I remain bullish," Mr Thomas said. "The American [financial] system has got its issues and it will take some time to work through those issues."
Mr Wendt said gold stocks had been sold off over the past few months because investors had seemed averse to any equity investments. But he said now there was a feeling that even keeping cash in the bank was not necessarily a safe move.
"Gold is regaining its rightful place as a hedge in times of financial uncertainty," he said. The Sydney Morning Herald
MON Price at posting:
29.5¢ Sentiment: Hold Disclosure: Held
