MELBOURNE AUSTRALIA 26 January 2007 – Today being Australia Day we thought there is probably no better subject to look at than Gold. Seeing as Gold is one half of the nation’s official colours, it is even more apt. As for the other half, the Green, well we can’t say that we have seen all that much green around. Brown on the other hand is in abundant supply. Although we are not sure that Gold and Brown match. We’ll leave that one to the style gurus.
So, Gold it is then, on this Australia Day. As of today, the price of an ounce of gold is trading around USD$650 or AUD$835. This is still around 10% below the peak reached in early to mid 2006. However, after flailing around all over the place for the last six or seven months, signs are that it is in the process of mounting a resurgence.
Obviously the AUD price of gold is impacted by the USD price of gold and the exchange rate. And so with the price of USD gold rising and the Aussie dollar having fallen by two cents during the last few days following the consumer price index (CPI) figures, AUD$1,000 Gold isn’t far off.
Michael Guido, director of hedge fund marketing at Societe Generale in New York, told Bloomberg News, “The market has broken out. There are very strong flows from the ETFs [Exchange Traded Funds] and the hedge funds.”
Demand for all commodities has been increasing due in part to the interest from the ETFs and hedge funds. Although the growth in demand has perhaps slowed somewhat during the last six months.
Even so, the ability for investors to hold a direct interest in the price of gold is attractive for those investors who are bullish on the metal, yet do not want to invest into a gold mining company due to concerns about their hedging policy or their ability to extract the metal from the ground. Or even the company’s ability to find any in the first place.
The other alternative in the past was for the investor to buy the physical gold and then store it for themselves, whether that be in a bank vault, safety deposit box or in a shoe box under the bed!
Fortunately, the development of exchange traded funds has meant that investors can now buy an exposure to the actual gold price by simply placing an order with their stockbroker to buy the listed gold ETF. These are currently available domestically in Aussie dollars, or if you really wanted to, you could buy them overseas on the US market.
A perfect example of some of the risks faced by gold bug investors was Newcrest Mining Ltd (ASX: NCM) yesterday. As reported by Reuters, the company reported that “Its gold output for the December quarter edged higher, but it cut its production guidance for its Telfer mine, send its shares into a tailspin.”
Newcrest shares fell approximately 15% on Thursday from the previous days close.
According to Reuters, Newcrest “cut its forecast for gold output at the Telfer mine in Australia by about 3.6 percent to between 675,000 and 700,000 ounces in the year to June 30,2007.”
At least when look at investing in gold through an exchange traded fund – or any other commodity or index for that matter – it does remove at least one of the variables of investing, namely company risk. With that variable removed there are then only another two hundred and thirty-seven other things you have to worry about!
And to finish, we notice from Bloomberg that China’s economy grew by 10.4 percent in the fourth quarter, while inflation increased by 2.8 percent in December, a figure which Isaac Meng, economist at BNP Paribas thinks will increase the chances of a Chinese interest rate rise.
China may or may not be buying gold in big amounts, but it is certainly continuing to take in plenty of other commodities.