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Low interest trade deficit causes devaluing dollar

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   http://www.thewest.com.au/20040107/business/tw-business-home-sto118061.html

http://www.thewest.com.au/20040107/business/tw-business-home-sto118061.html

Surging gold bulls tipped for long run
By John Phaceas

ANALYSTS were predicting a fresh bull run for Australian gold stocks yesterday, after gold powered to its highest level since December 1988 and pundits tipped it could break through the $US450 an ounce mark before the middle of the year.

After rising $US5.87 to $US423/oz in Australian trading yesterday, gold shot to a 15-year high in early London trade last night of $US428/oz as growing concerns about the $US500 billion trade deficit in the US and its reluctance to lift interest rates sent the US dollar spinning out of control.

Coming on top of a 20 per cent rise since last April, gold's latest surge sent the share prices of Australian gold miners and explorers racing, adding millions to the paper value of investors' holdings.

Stocks such as WA juniors Deep Yellow and Siberia Mining surged more than 16 per cent and 11 per cent respectively. Australia's biggest producers, such as Lihir Gold and Newcrest Mining, also enjoyed gains of up to 6 per cent.

With no evidence in sight that gold prices are about to lose their shine, analysts said investors could be facing a boom similar to that which has propelled Australian nickel stocks over the last six months.

"A lot of gold stocks really haven't moved yet so there's a lot of scope to trade out of other things where people made a lot of money, like nickel," said Hartleys resource analyst Kevin Tomlinson, tipping the metal could pass $US430/oz soon.

"So I'd expect a pretty serious run in gold in the not too distant future."

Mr Tomlinson said companies actually in or nearing production, and explorers announcing good drilling results, were likely to be the biggest winners, mimicking the performance of nickel stocks in recent months.

Gold's rise has largely been fuelled by corresponding weakness in the US dollar against virtually all other leading currencies The greenback this week hit a record low against the euro and a 6½ year low against the Australian dollar.

The US dollar's demise has been triggered by the Bush administration's refusal to act on reducing the record US trade deficit, and comments from the Federal Reserve indicating that it has no plans to lift interest rates despite clear evidence the US economy is recovering strongly.

"Over time, fund profit taking and producer sales will help apply the brakes on this rally," investment bank NM Rothschild said yesterday. "But for the time being, more upside can be expected as sentiment on (foreign exchange) markets remains dollar negative with the market continuing to focus on the large US current account deficit and low interest rates."

Declining exploration in recent years, which has slowed the development of new mines, and the closing out of gold hedges by producers is also restricting the amount of physical gold entering the market, exacerbating current prices.

John Dow, chairman of the Australian Gold Council and head of Newmont Australia, said that while Australian miners were not directly benefiting from the higher US gold price - Australia's strong currency has actually pushed the local gold price down from $644/oz 12 months ago to levels around $550/oz - it had given a major fillip to sentiment. That had in turn made it easier for small miners and explorers to raise money.

However, it did not take away from the need to keep up the pressure on governments to provide incentives to encourage exploration, such as flow-through shares, he said.


© 2004 West Australian Newspapers Limited



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