Macquarie Bullish On Gold

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MELBOURNE AUSTRALIA 14 December 2006 – The Macquarie Bank Ltd. (ASX: MBL) research team threw it’s weight behind the gold story recently by publishing a report under the headline “Gold sector: time to shine.”  In this research report they say:

“Positive gold price outlook.  We forecast gold prices to rise to USD$700/oz by 2007, averaging USD$683oz in 2007.  Our positive near and medium term outlook is underpinned by a favourable macroeconomic environment for gold investment against the backdrop of a supportive physical market.”

They go on to say, “But why now? Given speculation of corporate activity has been surrounding these two companies since the late 1990’s, sceptics are right to ask – what has changed?  Hedge books are no longer the poison pill they once were and operating risk is diminishing.  Also, the market should not underestimate either the value of producing long life assets, or how much global gold majors are struggling, increasingly, to merely replace production, let alone grow.”

And it isn’t just the price of physical gold that they like, gold mining companies have their seal of approval too.  Macquarie says, “We recommend rotating more exposure into gold having regard to the spectacular run of many of the small cap base metal miners and our recent ratings cuts, our relatively more measured outlook on base metals equity and exposure and the underperformance of gold and gold equities relative to their base metal peers.”

Overnight in New York the price of gold closed at USD$633 an ounce.  Tom Hartmann, commodity broker at Altavest Worldwide Trading in California told Bloomberg News, “The turnaround in gold is tied to the jump in oil prices, this could be the catalyst to break out of the recent consolidation in gold prices.”

The gold story is looking very attractive again now that it is nearly USD$100 down from the peak reached in May this year, and it is interesting to see Macquarie jumping on board.

As a sideline, as we write it appears that the Qantas (ASX: QAN) board has accepted the revised offer from the Macquarie Bank led consortium.  The increased offer will stand at $5.60.  It is expected that credit ratings agency Moody’s will downgrade Qantas credit due to the large amount of debt that will be pushed onto the airlines books.  Despite this, we look forward to the prospectus when Macquarie spin off their stake, that will highlight the company as having strong, reliable, dependable and predictable earnings… with a truck load of debt.

Kris Sayce
Kris Sayce, dubbed the ‘Jeremy Clarkson of Australian finance’, began as a London finance broker specialising in small-cap stock analysis on London’s Alternative Investment Market (AIM). Kris then spent several years at one of Australia's leading wealth management firms. A fully accredited advisor in shares, options, warrants and foreign-exchange investments, Kris was instrumental in helping to establish the Australian version of the Daily Reckoning e-newsletter in 2005. He is currently the Publisher, Investment Director and Editor in Chief of Australia's most outspoken financial news service — Money Morning.
Kris Sayce

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Comments

  1. Great news that the Macquarie led consortium will take over Qantas. They will, no doubt, do to Qantas what they have done to Sydney airport & every other enity they’ve got their grubby little hands on: the public will pay more and services will decline. Still, I heard that there’s a large chunk of cash going to the ‘management team’ for their role in the sale. No wonder the Chairperson sounded so very upbeat on the radio today: she’d probably just checked her bank statement.
    Money talks and the public gets shafted; what else is new?

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  2. i’m also bullish on gold and agree to your gold target / average of $680 or above, if- correction till $550-$560 take place in INDIAN marriage seasone.

    vagadia nilesh
    December 15, 2006
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  3. Gold currently is battling to stay at $ 630. Every quarter that the fed keeps the discount rate at 5.25 will pressure gold lower. The 17 past interest rate increases by the Federal Reserve Bank has stopped wild price swings in gold. It is currently overprice by $ 45 according to my calculation. $ 585 is the next target befroe it hits $ 700. Be a seller of calls and puts for volatility is declining. Gold pays no interest,and if one is taking notice, department stores are all reducing their jewelry prices by 30 to 40%, which means the consumer is not biting at gold with new higher prices for the holiday season.
    Long term gold is a hold, but in the short term look for a 7% sell off. Housing is cooling ,a nd car sales are also flat. If the housing industry gets worse, individuals wills tart selling gold jewelry to help pay for expenses on overpriced real estate. In 1980, the price fell from 850 to 400. the chart currently is identical, however the high is 740 ,and the new low is 500. Risk of 22% decline if one goes long gold now, for a possible gain of 10% if it goes to $ 700. 2to 1 risk reward is not worth the investment.

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