Full text loading...
-
Gold - challenging fundamentalism
- Source: First Break, Volume 22, Issue 7, Jul 2004,
-
- 01 Jul 2004
Abstract
In the mining for gold, like oil and gas exploration, technology considerations take second place to market considerations, and the news is not especially positive. Kamal Naqvi, precious metals analyst, commodities research, Barclays Capital Research, lays bare the economic and investment factors that are denting any high hopes for gold mining prospects. Watching markets and media commentary on the gold market in recent months, one could be forgiven for assuming that gold was simply a derivative of the Euro – such has been the correlation between the two. As a result of this close relationship, we sense a high degree of complacency throughout the industry about both the level of gold prices and the remaining structural challenges still facing the gold market. Contributing greatly to this complacency has been growing noise from the ‘bulls’ on major gold market specific schemes for why gold is still in the early stage of a major bull run. The five pillars of this ‘gold fundamentalism’ are as follows: 1. Gold prices will always trend higher. 2. Demand will surge, thanks to China (on top of India). 3. Supply is falling. 4. Central Banks will become ‘believers’ again. 5. Long-term investors will return to gold. We believe that many of these supposedly ‘bullish’ themes for the gold market are overdone, unproven or wrong. This does not mean that we will see a collapse in gold prices back below $300. However, it recognises that a consensus economic view (i.e. of robust global growth) is likely to see gold prices come under increasing pressure. For gold producers this is likely to mean that relative share price performance will increasingly reflect corporate performance rather than merely market perceptions of leverage to the gold price.