The JSE index of gold shares has fallen back to levels last seen in June 2005, around 52% below its high. But, at the same time the price of gold has risen almost 100%.
According to Peter Major, of Cadiz corporate solutions the reasons for the decline in stock prices are numerous and not solely linked to the general decline as a result of the global financial crisis. They include: the recent poor safety records at South African mines, Eskom's troubles, out-of-control working costs, rising fuel prices and ever deeper mine levels.
Speaking on the SAFM Market update with Moneyweb, he added, another reason is the thinning out of top management, "I don't think we've been thinner on experienced, qualified management ever. I don't believe so in 100 years.
"After two reasons you just say "Let's avoid the sector," he says.
Despite all this the management teams at the various mines remain positive about the sector's prospects and are looking toward 2009 for a turn around.
However, Major is not completely convinced. "If everything was still up, I'd say yes [they should be positive]. But gold shares are at a one-year high relative to the Alsi, and they're at a one-year high compared to most sectors of the Alsi, so I just think there are a lot better alternatives out there right now.
"There are a lot of reasons those gold performances are going to be better next year, the company performances. These are very bad performances - they had a lot of bad things thrown in. But on a relative basis there are so many attractive deals out there right now."
Speaking on the same program, RMB Asset Manamgement's Wayne McCurrie added, "There's still huge uncertainty, obviously, on resource shares, but the question is: how much of it is in the price already? I mean, Anglo American is down to R210 from around R550, at the top. Their earnings aren't going to halve - not Anglos. So you've got to think there is some value there, you've got to think that on a three-year basis you are buying good-quality shares at very low prices. But the problem is not the three-year outlook. The problem is the three-month outlook. These things could fall another 20% first."
