Subdued sharemarkets, concerns the base metals mining boom is drawing to a close and plenty of global debt paints a bright outlook for gold. The precious metal appeals in uncertain times and brokers and analysts are predicting more uncertainty in 2013.
Les Szancer, of blueribbonoptionsonline.com, says while the gold price might fluctuate in the short term, it will continue to rise for years. As far as Szancer is concerned, short-term volatility merely provides trading opportunities. “To me, whether the gold price goes up or down today, next week or next month is just irrelevant over the longer term,” Szancer says. “Astute investors will continue to accumulate gold in response to global debt.”
Szancer is predicting gold will rise to $US2500 an ounce in the next 12-to-18 months and to $US3000 an ounce in two-to-three years. He has long been bullish about the precious metal. In February 2010, when the gold price was marginally above $US1100 an ounce, Szancer predicted it would rise to $US1500 before the end of the year. Gold finished 2010 at $US1418 an ounce, but Szancer correctly forecast it would continue its upward trend. The gold spot price was trading at $US1724 an ounce on November 30, 2012.
“My view about gold rising has been mostly based on global debt,” he says. “The world can’t continue as is for the long term. It’s not just about Greek and European debt, but US debt. Countries can’t fix debt by borrowing more. Do you think my bank would give me more money if I couldn’t meet repayments on existing loans? Of course not. And central banks continually printing money, whether it’s in the US, Europe or Japan, is a short-term band-aid solution. And it devalues currencies and puts upward pressure on inflation. Now, if you own gold, it’s a store of value. It’s a hedge against inflation and is widely viewed by investors across the world as a safe haven. And, unlike US dollars, there aren’t copious amounts of gold. When the world goes into recession, I would be rather holding something tangible and valuable like gold rather than paper US dollars. Gold has intrinsic vale. Currencies are not backed by the gold standard anymore. If a country goes broke, their currency is worth virtually nothing.”
Szancer says increasing demand for gold, particularly from China and India, also puts upward pressure on the price. “The wealthy Chinese just love gold – rings, watches, earrings, bracelets and necklaces,” he says. “The Indian wedding season (between late September and early January) is always good for gold demand.”
Richard Morrow, a director of E.L & C. Baillieu, is a self-confessed gold lover, watcher and investor. Morrow finds it exhilarating to hold gold in his hand and believes its beauty can’t be matched. Even the tone of his voice changes when talking about it. “To hold a gold ingot in your hand … its amazing,” he says. After following gold for decades, he is also known to murmur, “gold will always break your heart”. Why? “Because, over the decades, I’ve seen rapidly changing gold prices disadvantage speculators trying to predict movements,” he says.
He says gold has been trending up for almost 15 years. Central banks were “tossing it out” in the 1990s. In 2009, India’s Reserve Bank bought half the 400 tonnes of gold the IMF (International Monetary Fund) had earmarked for sale.
Keeping in mind that gold is speculative and reacts quickly, Morrow is also forecasting the bullion price to increase way beyond $US2000 an ounce in the next 12 months. “Demand is rising, production is falling and gold is a great store of wealth,” he says. “All the gold ever mined in the world wouldn’t fill two Olympic-size swimming pools.”
But Morrow says the rising bullion price hasn’t been reflected in gold company equity prices. “Actually, gold company shares have been pretty poor performers,” he says. “The performance of gold company management at some firms has been pretty ordinary, to say the least, so investors have shown a preference for physical gold or derivatives.” Generally, he says, gold companies haven’t delivered enough profit or dividend growth to satisfy investors despite rising costs.
“Another thing is sharemarket investors are impatient,” he says. “They expect growth each quarter. Now, if a company has a bad fortnight at a mine, it can wreck the quarter.”
SELECT GOLD STOCKS TO CONSIDER BUYING
Newcrest Mining (NCM)
Szancer says any balanced resources portfolio should include Australia’s biggest gold producer. Statutory profit was up 23 per cent to $1.117 billion and earnings per share grew by 16 per cent to $1.46 for the full 2011/12 year. The stock closed at $25.16 on November 29. In 2011, Szancer says it was trading above $40. “It’s nicely positioned to benefit from a higher gold price when that inevitably happens,” he says.
Quintessential Resources (QRL)
A speculative stock for punters, with an appetite for risk. Szancer says this junior company is focusing on exploring and developing highly prospective gold and copper properties in Papua New Guinea. The tenements are near a very rich gold area. “QRL offers good potential for investors wanting to take risk,” he says. “It owns drilling rigs, trucks, loaders and other equipment, so it can do the work for half the price of contractors. This is a potential takeover target.”
Silver Lake Resources (SLR)
Projects include the Mount Monger and Murchison goldfields, Great Southern and Copper Lakes. It has a resource base of 4.5 million ounces in highly prospective regions. Net profit for the 2012 financial year rose 97.4 per cent to $31.175 million and revenue increased 50.4 per cent to $135.3 million. “So, we firmly believe that there’s more upside from here for Silver Lake,” Morrow says.
Unity Mining (UML)
Owns and operates the Henty gold mine on Tasmania’s west coast. Morrow says it also owns the Bendigo goldfield and has a minority 34 per cent stake in GoldStone Resources, a West African company. Although a speculative investment, Morrow expects the company to generate strong operating cash flows for the next five years, and prospects exist to increase its resource at Henty. It enjoys a strong cash position.
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