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.