Asia Times: Australian gold stocks shine as bullion soars



	February 8, 2000	atimes.com

Oceania

Australian gold shines as bullion soars

PERTH - Australian gold stocks surged after world bullion prices rallied on news that major producer Placer Dome had suspended its forward sales program and would reduce hedging.

Spurred by a four month high for the precious metal, the gold index on the Australian Stock Exchange jumped 96.1 points, or 11.93 percent, to 901.8 points. Shares in gold companies took off, led by Normandy which rose 12 percent on turnover of 30 million, while Newcrest gained 38 cents to A$4.23.

However, Australian producers, aren't rushing to adjust their hedge books. ''. . . you won't get (Sons of) Gwalia or any of those guys doing it, not when they are getting A$650 (US$415) an ounce,'' said Paterson Ord Minnett analyst, Andrew Clayton. ''It just indicates how volatile gold is at the moment.''

The gains on the stock market followed a US$27.50 an ounce rise in the gold price to a four month high of US$313.00.

The expected rally was triggered by Canadian producer Placer Dome which announced on Friday that it would stop hedging its gold position immediately and called on other gold companies to do the same.

Also buoying the market was speculation that Barrick Gold was reassessing its position. The North American major is to make a presentation on its strategy, sparking suggestions that it would also reduce its forward sales program. Clayton said a positive announcement by Barrick would enhance sentiment and perhaps extend the rally into a second day.

The surge saw gold enjoy its biggest run since it hit highs of US$324 per ounce in September following the decision by European central banks to limit sales and lending of their bullion reserves for five years.

But the gold price has been sluggish since, hovering between US$280-85 an ounce. Analysts believe life of the rally will also be short-lived but confident the price could settle above the psychologically important US$300 barrier. ''I can't see it staying at these levels. I think there will be short-term profit taking,'' Clayton said. ''But I would be looking for it to establish around the US$300 mark.''

Macquarie Porter Western resource analyst Paul Carter said a positive statement by Barrick could result in another surge in the gold price on Tuesday. ''What nipped the rise in the bud last time was that people were caught out with hedge books. We've had three to four months to settle down and maybe people will buy back into gold,'' he said.

CIBC Wood Gundy gold analyst John Macdonald attributed the soaring gold price to a combination of factors, including pressure on banks and dippping unemployment in the US. ''That suggests we should be looking at inflation . . . and the Placer announcement on Friday added fuel to the fire,'' Macdonald said, continuing that none of these factors would have had any effect on the market had they occurred in isolation.

Some of Australia's bigger gold producers, such as Normandy and Newcrest have already started restructuring their hedging programs which are considered an artificial cap on gold prices. Terry Burgess chief executive and managing director of Delta Gold Ltd said Delta would continue to maintain a modest hedge book geared towards an increase in the gold price. ''We only cover the cost of production in hedging. We've emphasised more on puts and we've done very little in forwards over the last few years,'' Burgess said.

''We believe in gold and believe the gold price will go up and on days like this we are very happy. Certainly we have no intention to change our hedging policy and do anything other than maintain a modest hedge book.''

Peter Lalor, executive chairman of producer Sons of Gwalia Ltd, which boasts one of Australia's most profitable hedge books, welcomed the move in the gold price but said it would not prompt a rethink of the company's hedging program. ''We've seen this sort of thing before. My observation would be is that if all we are relying on here is the Placer Dome announcement then I don't think it (the gold price) is sustainable,'' Lalor said. ''Clearly the hedge funds drove it up. People long in the market had to get back in and retrieve their position and cover themselves. ''I'm not trying to be negative, I think it is very positive and I suppose my attitude would be if it creates a new floor that is fantastic.''

Chief executive Australian Gold Council Greg Barns said the rise in the gold price was not just a producer issue. ''What it demonstrates is that once again, when there are inflationary fears or some economic uncertainty looming then gold becomes a very lucrative and safe investment.''

(Asia Pulse)