While US$2,000 gold seems a way off from current levels of around $1,600 an ounce, the majority of gold miners see the precious metal hitting that key level sometime next year.
A new PricewaterhouseCoopers (PwC) survey says 80% of gold mining executives expect the price of gold to continue to increase in 2012 with only 6% expecting a decline during the year.
Last year executives predicted that gold would range between $1,400 and $3,000 with 40% of them believing the price would peak around $1,500 – and they were somewhat correct.
Gold raced through $1,500 to hit $1,920 an ounce on the back of fears that the US would crumble under its debt, and has been fairly volatile ever since.
This year there are no predictions of $3,000 gold – perhaps executives have become more realistic – but PwC says most predictions were close to the $2,000 mark.
The range for 2012 is $1.350 and $2,500.
PwC surveyed 40 mining executives from companies operational globally. These senior and junior companies represent 26.5 million of the gold ounces produced in 2011 and 37.8 million ounces that will be mined in 2012.
Only two of the participating mining companies are South African.
But price predictions are quite different to the prices used for mine planning.
For 2012 the average price that will be used by the executives surveyed will be $1,420, compared to $1,120 in 2010.
But PwC said: “While there is definitely reason to celebrate the high price of gold and the optimism displayed by mining executives regarding continued high gold prices, here is the frustration: diverging performance of bullion and gold stocks.”
With the shares of gold companies not increasing in line with the price of gold, gold mining companies are facing increased competition for investors’ cash.
John Gravelle, the Canadian mining leader at PwC, said gold miners were "very aware” that there are other investments such as exchange-traded funds linked directly to the price of gold that are attracting more and more investor interest.
This is why there has been a move by gold companies to leverage their status as dividend payers to differentiate their stocks from other investments. While some have moved to quarterly dividend payments, others have started linking their dividends to increases in the gold price so as to reassure investors that they are getting a cut of the higher prices.
The PwC survey found that 27% of gold miners paid dividends in 2011, compared to only 9% in 2010.
South African gold producers are not being left behind. In fact, they are among those leading the dividend revolution.
In November AngloGold Ashanti announced that it would double the frequency of its dividend payments to four times a year, or every quarter.
Harmony Gold Mining also said it was considering linking its dividend payments to the gold price.
While dividend-paying stocks have always had a loyal following, they have again found favour among more risk-averse investors looking to get higher returns in an otherwise volatile market.
Traditionally major mining companies have been solid dividend payers but the idea of them being willing to peg dividends directly to the performance of the commodity they produce is very enticing, particularly because so many market watchers say we are in the midst of a commodities boom.
There is something about a dividend being dictated by the forces of the market (rather than the competence of management) that makes a lot of sense.
But again, much of these changes depend on improvements in the gold price. Investors could find themselves on the losing end if the price of the precious yellow metal tanks.
Gold has, however, been one of the better performing investments again this year.
According to precious metals specialist GoldCore, gold is 13.7% higher in US dollar, 12% higher in British pounds and 14.4% higher in euros so far this year.
“Gains were seen in all fiat currencies and even stronger performing fiat currencies such as the Chinese yuan and Japanese yen (+9% and +8.75% respectively),” it said in a report on the outlook for 2012.
By comparison, GoldCore noted that stock markets “had a torrid year” with the S&P500 down 1.3%, the FTSE down 8% and the CAC and DAX down 19% and 15% respectively.
Asian stock markets also fell with the Nikkei down 17%, the Hang Seng 20% and the Shanghai SE down 22%.
“Thus, gold again acted as a safe haven and protected and preserved wealth over the long term,” it said.
Looking to the new year, it said support for the price of gold should come from the rising global money supply coupled with increasing investor and central bank purchases which have been driven by falling real interest rates and concerns about the euro, the dollar and other fiat currencies as stores of value.
“Gold will likely reward investors internationally in 2012 as it did in 2011 and will again be an essential diversification for anyone wishing to protect and grow wealth in what will be a very volatile 2012 and in the coming volatile years,” it said.
