Still time for gold bugs

Johannesburg - Investors who bought gold shares a year ago should now find them worth 40% more than at this time last year, and those caught napping still have an opportunity to profit.

The yellow metal continued its meteoric rise on Monday to reach $1 067 - its highest level to date.

"This was mainly spurred on by the weaker dollar," says Johan Pyper, head of investment research at Plexus Asset Management. The good news for those who missed the early run is that analysts' expectations are for the price to climb even further - at least in the medium term.

"The gold price will rise because real interest rates will remain low or negative globally, reducing the cost of holding gold. This makes the metal even more attractive," reckons Daniel Sacks, head of resources shares at Investec Asset Management.

Certain gold mining companies have begun to follow suit, contributing to the positive mood in the market. "Some companies, like Gold Fields, showed a profit in the previous quarter and the market liked that," notes Jonathan Fisher, portfolio manager at PSG Konsult.

But the analysts agree that the companies' earnings are not good enough yet to justify the high gold price. "The gold price's current level certainly has no relation to the gold mining companies' earnings," Fisher declares.

This is one of the reasons why analysts do not consider the run sustainable over the long term. Another reason is the strength of the rand relative to the dollar.

"The main reason why the rise cannot continue for very long is because the rand price of gold has not improved," Pyper adds.

- Sake24.com

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