Senior Westpac executive says gold`s bull run appears to have ended - #GOLD NEWS - Mineweb.com

Senior Westpac executive says gold's bull run appears to have ended

A top executive at one of Australia's biggest banks has been taking a fairly gloomy view of the prospects for the gold price at a conference in Australia, which contrasts somewhat with some of the economic analyses at the European Gold Forum in Zurich.

Author: Ross Louthean and Lawrence Williams
Posted:  Thursday , 19 Apr 2012
PERTH (MINEWEB) and ZURICH (MINEWEB) - 

In his address to this year's Paydirt 2012 Australian Gold Conference in Perth, Westpac Institutional Bank's Senior Economist, Justin Smirk, gave little comfort to gold miners and explorers as to where he felt the gold price was headed.  He said that while the gold price was peaking, gold continued to hold "in an economic fear environment" a pre Great Financial Crisis premium to oil - often used as a benchmark against why investors have been fleeing to gold and used what he saw as a fall-off in fabrication demand as justification for his viewpoint. 

"The reality is however that fabrication demand for gold from jewellery and industrial users is larger than investor demand for gold but fabrication demand is declining," Smirk said.

"If gold prices remain high but fabrication demand falls, then gold loses a base for its value pricing and this is why we don't see gold breaching $2,000 an ounce in any meaningful way," he said.

"Of course that is possible that prices could get there given current volatility and uncertainty but it becomes a question of how one values economic risk as gold price movements are directly responsive to economic uncertainty or conversely, certainty - and China has a big influence on that going forward, both in terms its demand for gold and its broader impact on global growth.

"Westpac's view is that gold's bottom line will settle around $1,700 an ounce as the recent round of cash injections by global central banks has not pushed the gold price higher than its peaks of 2011."

Looking ahead there was some comfort for those involved in the gold sector in that he said that Westpac was forecasting  gold will average around $A1,780 an ounce next year but that this will be the peak and prices are set to nudge back to around $A1,500 a ounce by 2014.

Of course, what the market, particularly that for mining stocks which have been underperforming the gold price even, has not seemed to recognise is that current gold price levels are still very good for most miners and explorers, and for those actually in production profit levels are mostly very strong given that most producing gold mines will have been brought to production on a predication of $1,000 gold or less!  Rising costs will be eroding the margins, but the miners are mostly still well ahead of the game.  Even current feasibility studies are put together usually assuming at a maximum a $1,300 gold price.

Per contra, at the Denver Gold Group's European Gold Forum in Zurich, the keynote speakers were mostly positive on gold, although perhaps markedly less so than a year ago.  The consensus seemed to be that the bull run is not necessarily over and that the recent fallback has been more of an overdue correction rather than a reversal of the overall upwards trend.

See the article online here: Senior Westpac executive says gold`s bull run appears to have ended - GOLD NEWS - Mineweb.com | The world's premier mining and mining investment website Mineweb

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Gold investment statistics commentary Investment World #Gold Council

Volatilty and price movement in gold this quarter.

The key themes for gold during Q1 2012 were:
Rising price in all major currencies with yen investors
benefiting most:Gold prices climbed 8.6% QoQ in US$/oz on the London PM fix, despite a number of headwinds. Though the quarterly return was almost twice the ten-year average of 4.5%, similar gains in gold were seen across all major currencies with yen investors seeing a gain of 16.1% in local currency terms.
Positive volatility for gold in stark contrast to negative volatility for commodities:
While gold's price volatility was elevated, it continued to exhibit a positive (upside) skew. Gold's annualised volatility measured 20.4% during Q1, registering 21.8% on the upside and only 16.4% on the downside.
Long-term correlation of gold to equities remains statistically insignificant:
Despite higher than average short-term correlations to equities and other risk assets during the quarter, gold's performance remains independent of risk asset performance. Regression analysis shows that gold may, at times, move in the same direction as equities, but these moves are almost always related to other macro factors, such as, gold's negative correlation to the US dollar.
Chart 1: Performance of gold (US$/oz) price and volatility during Q1 2012

Chart 1: Performance of gold (US$/oz) price and volatility during Q1 2012 - click to enlarge

Gold’s long-term price trend is maintained during Q1 2012

Gold investment statistics commentary Investment World Gold Council

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