Gold bugs look to new millennium for fresh start

For gold bugs, 1999 was the worst of times, it was the best of times ... but mostly it was the worst of times.

After continuing its long decline to plumb 20-year lows for much of that year, a late September commitment from key European central banks to limit lending and cap official sales suddenly reminded the market of the adrenaline surge only a gold rush can generate.

In the space of two weeks, spot prices ignited and shot from US$255 per ounce to a stellar US$33B an ounce as major hedge funds and international speculators scrabbled to cover massive short positions.

From talking the sector down, analysts overnight began to talk up the prospects for a new golden dawn marked by prices north of US$35O an ounce.

Gold would not return again to the lows of mid-1999 for the foreseeable future, they said. Consequently, gold stocks ran the world over and majors and minors alike began dusting off shelved development and exploration plans.

Now, just months later, the lustre is gone again and bullion is back where it started 1999, locked in a range around US$29O an ounce.

Most analysts are now predicting that bullion will remain highly volatile for the medium term as the same old bogeys - the overhang of central bank reserves and the activities of major hedge funds continue to shadow the market.

But most also agree that there is some hope for a breakout above US$3OO per ounce and that a new floor has been set around US$2BO.

CIBC Eyres Reed analyst John Macdonald said there was as yet no indication that the huge short positions that folded in September were being rebuilt, which bode well for medium term price prospects.

“WeTl just have to wait and see the figures ... but we’re still hoping US$32O - is achievable in the first quarter of (this) year,” he said.

Macquarie Bank’s James Mactier was

more bullish, suggesting bears stung by the September surge would be keen to avoid a repeat dose.

“Having been at US$33B an ounce just (a few) months ago, people are going to be very reluctant to initiate big short positions down at these sort of levels - the recovery is still well within people’s memories,” he said.

Bell Securities analyst Keith Goode tipped a trading range of USS2BO-320, but warned that the only safe assumption would be to “expect the unexpected.”

“Just about anything is possible ... because gold doesn’t obey normal rules,” he said. “But the key question remains whether central banks will allow gold to trade above US$32O an ounce ... which they will perceive as inflationary.”

While the September bank commitment was a positive gesture, Goode said the European Central Bank had clearly indicated that it was happier with gold at US$29O “purely and simply because that’s the price at which the Euro was formed.”

And when margin calls threatened to bankrupt Ashanti Goldfields, and with it the entire Ghanaian economy, banks aggressively intervened to peg gold back.

On the corporate front, 1999 will be remembered for two key developments the effective arrival of South African predators, and the headlong rush by junior explorers into cyberspace in a bid to remain afloat.

Early in the year, ambitious South African tailings outfit Durban Roodepoort Deeps Ltd unveiled plans to establish a 500,000 ounces a year Australasian base, soon followed by the world’s largest gold miner, Anglo Gold.

DRD was the first to move, making two unsuccessful raids on Fiji’s Emperor Mines, before winning control of NSW gold-copper producer Hargraves Resources, acquiring a 19.9 per cent stake in PNG miner Dome Resources and tying up the purchase of the Rawas gold mine in Indonesia.

Making bigger waves was Anglo Gold,

which trumped a $570 million bid by Delta Gold NL for its Sunrise Dam neighbour Acacia Resources with $B3O million worth of Anglo paper.

The ranks of major Australian producers have now been culled to virtually five stocks - Normandy Mining, Newcrest Mining, Delta, Sons of Gwalia and Lihir Gold - and most analysts are tipping a fresh round of predator activity is imminent, again led by Anglo Gold.

Meanwhile the emergence of attractive low-cost middle tier producers like Hill 50 Gold, PacMin Mining Corp, New Hampton Goldfields, Ross Mining and Ranger Minerals could also drive renewed corporate activity.

The much awaited rationalisation of the junior end too gained pace during the year, with Croesus Mining offering $2O million for Kalgoorlie neighbour Gilt- Edged Mining, immediately after heading off a boardroom coup aimed at ramming through a merger with New Hampton.

Ironically, the jump into cyberspace could spawn a whole raft of new gold floats in 2000. “There are now a lot of Internet companies with a lot of gold assets inside them for which they are going to get zero value,” Goode said.

“So it’s fairly logical for them to do anin-species distribution and spin them out - depending on the gold price of course.”

But one trend that will continue to worry miners is a dramatic drop off in exploration spending, resulting in nine successive quarters of decline.

By late December, official estimates put quarterly gold exploration spending in Australia at just $101.5 million, 45 per cent less than the June 1997 peak.

As one explorer asked AAP - “If we don’t put the money in the ground now, then where are the next batch of mines going to come from when reserves run out in five years time?”

And funds for explorers are not likely to flow at least until gold can keep its nose above the critical US$3OO an ounce barrier for a sustained period. (AAP) ■