Gold rumbles herald the start of a bull run
September 23, 2005
By Nicky Smith
Johannesburg - The JSE's gold index has climbed 24 percent this month. For the year it is up 28.4 percent, while in the past two weeks the spot price of gold has been revisiting 17-year highs of $475 an ounce. All the rumbling noises herald a gold bull run, analysts say.
Gregor Krall, a technical analyst at BoE Private Clients, said a key level on the gold index had been breached last week when it broke through 1850 points.
The gold index is a compilation of all the locally listed gold shares. Yesterday the index closed 2.31 percent lower at 2028.9 points.
This month Harmony has climbed 36 percent to R65.80, Gold Fields has climbed 18 percent to R86.74, DRDGold is up 39 percent at R9.65 and AngloGold Ashanti has climbed 20 percent to R273.
Krall said: "When it went through 1850 we had our first major bullish signal. I actually think we're in the early phases and there's a lot more to come. "Notwithstanding the gains, it's still early days."
He said gold looked set to perform well between the next three months and the next two to three years. This was possibly because of higher oil prices, which were creating concerns of inflationary pressure.
Added to this were concerns of the knock-on effects of higher energy costs pushing per unit labour costs higher. There were also possible concerns over Japan, the world's second-largest economy, which was shaking off the hangover of its decade-long economic catatonia.
Rudolph Vermeulen, a derivatives analyst at online spread trading company Global Trader, said part of the impetus behind the gold price was "sector rotation".
He explained that sectors such as retail and banking had done well this year, "and at some time investors need to lock in the profits they've made and they need to put that cash somewhere".
The hurricanes off the coast of the US had contributed towards creating uncertainty in the market, which usually bolstered the gold price as the metal is seen as a haven and wealth preserver.
"It's almost as though gold is the flavour of the month," said Vermeulen.
Craig Pheiffer, Sasfin Frankel Pollak Securities' chief investment strategist, agreed with comments on inflation concerns. "At the moment it's just the threat of inflation. We haven't seen any evidence of it yet, but it is a concern.
"A gold price run indicates that something somewhere is not healthy. What I mean by that is that global capital is looking for an alternative place to invest," Pheiffer said.
US markets had been flat and had not offered much in the way of returns for investors this year. Exposure to emerging markets had offered more attractive returns, but investors were now looking for alternatives.
In addition, the erratic jumps in the spot gold price showed that some of the demand was being driven by trading programs, which buy and sell at certain levels, Pheiffer said.
Paul Walker, the chief executive of research house Gold Fields Minerals Services, said recently that a gold price of $500 an ounce for the year was achievable.
The real "kicker" for the gold price was the "faltering" US economy. He said any country that had to borrow money to pay the interest on its borrowings would need to devalue its currency further.
"However, the key to this, like all things in life, is timing. It's not a question of if but when. And the gold price will rally on the back of that."
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