Johannesburg - JP Morgan said investors should buy South African gold stocks, especially companies such as the world's No. 5 producer, Harmony Gold, that are heavily exposed to the sharply rising rand gold price.

"We believe there to be a short-term trading opportunity in the South Africa gold sector that has the potential at worst to offer outperformance of the JSE," JP Morgan analysts Stephen Shepherd and Allan Cooke said in a research note.

Harmony and smaller producer DRDGold are the stocks most exposed to the rand gold price because all of their current production is sourced from South Africa, the analysts said.

"We believe there are substantial short-term gains in prospect through exposure to Harmony and, for investors with a higher risk appetite, DRDGold," they said.

The JSE's resource index gained more than on Thursday, with Harmony up 34c to R87.34 and DRDGold down 4% to R4.03.

Shepherd and Cooke said that, late in 2001, the rand gold price began to rise sharply as a result of rand weakness after the 9/11 attacks, and in 2002 the gold sector outperformed the South Africa equity market by 115%.

The rand/gold price was once again rising sharply but the shares had yet to respond as they did in 2001/2, creating a compelling case for South African gold shares.

The rand had also weakened significantly, falling through the R9.40/$ level on Wednesday, while the rand/gold price had risen to a record high of R277 000/kg.

- Reuters