Bullion may yet top $1000/oz if global economy continues to slide
Resources Editor
GOLD analysts are optimistic that the March quarterly performance of South African producers will be relatively good because of a strong gold price and weaker rand, even though some companies’ volumes could be disappointing.
The first company to report on its March quarter performance will be DRDGold on Friday.
Gold was trading below R250000/kg this week, sharply down from its peak of R321357/kg during the March quarter. Its average in the March quarter was about R290000/kg, 16% higher than in the December quarter.
For South African gold producers, the rand-dollar exchange rate is critical because most of their costs are incurred in rands.
Stanlib resources analyst Sholto Dolamo said he expected gold would remain range-bound between $850 and $920/oz for at least the second and third quarters of this year, as jewellery demand was seasonally weak for most of this period. But if the global economy performed worse than foreseen, gold could break out of this range to more than $1000/oz, as investors sought a “safe haven” against falling asset prices.
Most economies were expected to start recovering at the end of this year into 2010, but the amount of liquidity injected into markets was likely to be inflationary, which could enhance gold’s attraction for investors towards the last quarter of this year, Dolamo said.
Gold companies’ share prices have fallen in response to recent trends in gold and the rand but Harmony’s shares have been hardest hit. Harmony has almost halved to R75 from R130 in late February, while Gold Fields is 24% weaker at R94,15 and AngloGold has dropped by the same percentage to R273. DRDGold is about a third lower at R6,30.
Imara SP Reid analyst Percy Takunda said Harmony’s shares had been considered due for a correction, though a second analyst, who asked not to be named, said the fall could be hinting at bad news in the quarterly report. Harmony has not given any guidance yet. Takunda said Harmony’s production could be knocked 10% lower than December’s by safety-related stoppages, but volumes would be helped by a ramp-up at Hidden Valley and profits would benefit from falling costs.
AngloGold said three weeks ago its March quarter production would be 2,5% below previous guidance because of a slow ramp-up in production after the Christmas holidays, safety-related stoppages and a plant breakdown at the Geita mine in Tanzania. Takunda said the market would be looking at AngloGold’s hedge book balance and the implications of Anglo American’s final sale of its stake.
Gold Fields said production would be 4% higher than in the December quarter. Higher output from Kloof and Driefontein would be offset by a mere 2% increase from South Deep and a 25% decline from Beatrix. Takunda said Gold Fields was expected to have a good quarter with a substantial increase in cash profit.
