Mysterious Power of Gold
"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
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
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.