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Gold and platinum prices have further to run - Investec
By Claire Milhench
Barrick Gold, Impala Platinum, Randgold Resources and Lihir Gold best placed to benefit, according to Daniel Sack.
LONDON (Thomson IM) - Gold and platinum prices have further to run despite climbing to record highs this month, according to Investec Asset Management's Daniel Sack.
With a power crisis in South Africa hitting the supply of gold and platinum, and gold viewed as a hedge against rising inflation, he said the metals are still some way from their peaks.
For platinum, he said a rise from December's 1,500 usd an ounce to 3,000 usd an ounce was not unthinkable, given that uranium and nickel doubled in price last year when their price squeezes began.
Over the last 12 months, gold has increased in price by 40.72 pct, reaching a record 952.4 usd an ounce on Thursday; in January alone it was up 11 pct. Platinum has done even better, up by 14 pct in January, and by 71.61 pct over 12 months, reaching 2,190 usd an ounce (see chart).
Gold and Platinum - 6 mths
Sack, who co-manages the Investec Global Gold Fund, said that negative real US interest rates, rising global inflation, the tight demand/supply situation and heightened economic uncertainty were all positive for the gold price: 'With the cuts in US interest rates, real short term rates are now low, and the last time that happened in 1980, gold rose very strongly.'
Supply is also constrained at present because of the power crisis in South Africa, which has interrupted mining operations. South Africa is the world's second largest gold producer behind China and sits on a third of the world's reserves. The South African gold producers have warned that power rationing will result in a 20 pct reduction in the gold mined this year, Investec said.
South Africa is also the world's most important supplier of platinum, producing about 80 pct of the annual volumes mined, and owning nearly all the known reserves. Given that demand for platinum from auto manufacturers for catalytic converters is relatively price inelastic, and that there are minimal above ground stocks, the removal of 500,000 ounces due to reduced power will severely impact the seven million ounce per annum platinum market. 'The demand from jewellery is likely to fall this year, but the market is still in deficit by 400,000 ounces so that is likely to lead to a price squeeze,' explained Sack.
He added that gold supplies had remained static since 2002 because diminishing new reserves are failing to compensate for dying mines. Traditional mining areas such as South Africa, Australia, Canada and the US are experiencing declines in production, with deeper mines required and lower grades. 'There is less new gold and it is becoming harder and more expensive to mine,' he said.
This tightening in supply has been disguised for some time by central bank sales and producer hedging. However, Investec believes that central bank sales will start to wither, and banks could become net buyers of gold.
'Last year we saw some buying by a Gulf state and Asian central banks seem likely buyers in future,' said Sack. 'Their FX reserves are huge and they currently have only 1.6 pct in gold, which would be a good diversifier.' He also pointed to increased speculative activity from gold ETFs, which are now equivalent to the world's seventh largest central bank in terms of their gold reserves.
Sack also argued that gold is cheap relative to the S&P 500 and has underperformed for 20 years. 'Now it has started to outperform, but to get to mean reversion it must increase by 70 pct.' Gold has also been the worst performing hard commodity of the super cycle, with oil, copper, platinum and nickel all outpacing it. 'Gold has been a relative laggard,' he said (see chart).
Gold lags other commodities
In terms of stock picks, Sack said that the platinum market was unusual in that poor operational performance could be rewarded with a rising share price. Since 2004, Anglo Platinum has cut its forecast 2008 platinum volumes by 20 pct, from three million ounces to 2.4 million ounces. Despite this, its share price has risen by 380 pct.
But in the fund, Sack prefers to look for companies with good cost containment and rising earnings. The fund is benchmark agnostic, but no share may exceed 10 pct of the fund's NAV. It is now fully weighted towards platinum, but underweight South African gold shares due to supply fears.
Top holdings include Barrick Gold, Impala Platinum, Randgold Resources and Lihir Gold. The fund has recently sold out of Newmont Mining on the basis that it is overvalued and AngloGold due to concerns over earnings downgrades. Impala Platinum is expected to benefit from the problems facing Angloplats, and is viewed as a potential takeover target by Newmont.
Indeed, with the large global gold miners battling to replace reserves, Investec expects merger and acquisition activity to continue this year. For majors, it said this implies dilution risk, while for potential targets - essentially the junior and mid-tier players that are already producing - the benefits could be considerable. As a result, the latter are expected to outperform the former.
'The top 10 producers account for 40 pct of the gold globally, so ownership is not as concentrated as it is for other commodities,' Sack explained. 'They are looking at a 7-10 pct decline in resources, and their exploration budgets are not being sufficiently increased, so the junior and mid-tier players could be targeted. And platinum companies are acquisition targets for the diversified miners. Impala has been in view for some time.'
By Claire Milhench
Barrick Gold, Impala Platinum, Randgold Resources and Lihir Gold best placed to benefit, according to Daniel Sack.
LONDON (Thomson IM) - Gold and platinum prices have further to run despite climbing to record highs this month, according to Investec Asset Management's Daniel Sack.
With a power crisis in South Africa hitting the supply of gold and platinum, and gold viewed as a hedge against rising inflation, he said the metals are still some way from their peaks.
For platinum, he said a rise from December's 1,500 usd an ounce to 3,000 usd an ounce was not unthinkable, given that uranium and nickel doubled in price last year when their price squeezes began.
Over the last 12 months, gold has increased in price by 40.72 pct, reaching a record 952.4 usd an ounce on Thursday; in January alone it was up 11 pct. Platinum has done even better, up by 14 pct in January, and by 71.61 pct over 12 months, reaching 2,190 usd an ounce (see chart).
Gold and Platinum - 6 mths
Sack, who co-manages the Investec Global Gold Fund, said that negative real US interest rates, rising global inflation, the tight demand/supply situation and heightened economic uncertainty were all positive for the gold price: 'With the cuts in US interest rates, real short term rates are now low, and the last time that happened in 1980, gold rose very strongly.'
Supply is also constrained at present because of the power crisis in South Africa, which has interrupted mining operations. South Africa is the world's second largest gold producer behind China and sits on a third of the world's reserves. The South African gold producers have warned that power rationing will result in a 20 pct reduction in the gold mined this year, Investec said.
South Africa is also the world's most important supplier of platinum, producing about 80 pct of the annual volumes mined, and owning nearly all the known reserves. Given that demand for platinum from auto manufacturers for catalytic converters is relatively price inelastic, and that there are minimal above ground stocks, the removal of 500,000 ounces due to reduced power will severely impact the seven million ounce per annum platinum market. 'The demand from jewellery is likely to fall this year, but the market is still in deficit by 400,000 ounces so that is likely to lead to a price squeeze,' explained Sack.
He added that gold supplies had remained static since 2002 because diminishing new reserves are failing to compensate for dying mines. Traditional mining areas such as South Africa, Australia, Canada and the US are experiencing declines in production, with deeper mines required and lower grades. 'There is less new gold and it is becoming harder and more expensive to mine,' he said.
This tightening in supply has been disguised for some time by central bank sales and producer hedging. However, Investec believes that central bank sales will start to wither, and banks could become net buyers of gold.
'Last year we saw some buying by a Gulf state and Asian central banks seem likely buyers in future,' said Sack. 'Their FX reserves are huge and they currently have only 1.6 pct in gold, which would be a good diversifier.' He also pointed to increased speculative activity from gold ETFs, which are now equivalent to the world's seventh largest central bank in terms of their gold reserves.
Sack also argued that gold is cheap relative to the S&P 500 and has underperformed for 20 years. 'Now it has started to outperform, but to get to mean reversion it must increase by 70 pct.' Gold has also been the worst performing hard commodity of the super cycle, with oil, copper, platinum and nickel all outpacing it. 'Gold has been a relative laggard,' he said (see chart).
Gold lags other commodities
In terms of stock picks, Sack said that the platinum market was unusual in that poor operational performance could be rewarded with a rising share price. Since 2004, Anglo Platinum has cut its forecast 2008 platinum volumes by 20 pct, from three million ounces to 2.4 million ounces. Despite this, its share price has risen by 380 pct.
But in the fund, Sack prefers to look for companies with good cost containment and rising earnings. The fund is benchmark agnostic, but no share may exceed 10 pct of the fund's NAV. It is now fully weighted towards platinum, but underweight South African gold shares due to supply fears.
Top holdings include Barrick Gold, Impala Platinum, Randgold Resources and Lihir Gold. The fund has recently sold out of Newmont Mining on the basis that it is overvalued and AngloGold due to concerns over earnings downgrades. Impala Platinum is expected to benefit from the problems facing Angloplats, and is viewed as a potential takeover target by Newmont.
Indeed, with the large global gold miners battling to replace reserves, Investec expects merger and acquisition activity to continue this year. For majors, it said this implies dilution risk, while for potential targets - essentially the junior and mid-tier players that are already producing - the benefits could be considerable. As a result, the latter are expected to outperform the former.
'The top 10 producers account for 40 pct of the gold globally, so ownership is not as concentrated as it is for other commodities,' Sack explained. 'They are looking at a 7-10 pct decline in resources, and their exploration budgets are not being sufficiently increased, so the junior and mid-tier players could be targeted. And platinum companies are acquisition targets for the diversified miners. Impala has been in view for some time.'
è un bel po che non aggiorno questo thread aperto qualche anno fa.....(eravamo a 400$ 
