U.S. Coin Price Guide

Coin Collecting

Buy Coin Supplies

Mysterious Power of Gold
James Kirby

"I'M THINKING of putting some savings into gold … gold bars," said my physiotherapist and I nearly fell off the table. It's unbelievable: in the space of a few weeks investors have gone from cautiously conservative to defensive in the extreme.

And nothing soothes that fear like gold - that's why the precious yellow metal is soaring to almost $US1000 ($A1078) an ounce. If that price means nothing to you, put it this way, it's the highest gold price since 1984.

Only a year ago anyone forecasting gold at US$1000 an ounce was at the lunatic fringe.

Today those forecasters are suggesting it can go to $US2000 (gold prices are always quoted in US dollars - in Australia the gold price passed $A1000 weeks ago!)

But accurately forecasting gold prices is almost impossible because gold is the most infuriating, mystery-laded speculative commodity on earth.

When something non-precious such as iron ore goes up 65%, as it did in the recent round of price agreements, it mainly means steel producers will pay more for iron.

When gold goes up - it's up 300% in three years - it really means other parts of the market are in trouble.

A rising gold price reflects a falling US dollar, rising inflation, the lack of a reserve currency for international investors. Unlike iron ore, or coal, or copper, the level of industrial demand driving the gold price - mostly based on the demand for jewellery - can become irrelevant.

In other words, the gold price is an indicator of fear itself - wrapped up and bundled onto a publicly traded market. That's why they mention it on the radio every morning.

Of course in Australia we are lucky to host hundreds of gold producers. Two gold companies - Newcrest and Lihir - are among the 10 best-performing stocks of the year so far.

The share prices of these two industry leaders have been turbo-charged by a strategic shift among both companies last year to break "hedges" they had in place which locked them into the lower gold price of recent years.

Well, you say, those gold producers must know what they are doing - they're at the heart of it all actually digging the stuff out of the ground. Yes, it's true. It's also true these two big companies have had pitiful recent histories, with Newcrest enduring extended problems at its Telfer mine in WA and Lihir enduring all the limitations of a mine in PNG. But still you'd think they're all thinking the same way about the underlying price of gold. But as always with gold things are never quite what they seem. As investors digest the scale of the recent price rises very smart players in the market are not showing anything like the outward confidence suggested at Lihir and Newcrest.

At St Barbara Mines, perhaps the most highly rated listed gold miner outside the "big two", the big decisions are made by managing director Ed Eshuys. He's the nearest thing to Australia's Mr Gold. He was the geologist who led the team who developed Bronzewing, one of the biggest gold mines in Western Australia.

You'd think Eshuys would be holding back waiting for these $US1000-plus forecasts to come true but in fact he has been "re-hedging" at St Barbara - he's not saying the price can't go much higher, but actions speak louder than words - he's covering his bets at these levels with a new hedging program.

© 1992-2018 DC2NET™, Inc. All Rights Reserved