After nearly 20 years of watching laggard performance, precious metals investors are finally getting bullish.
They're spurred by recent announcements by gold producers around the world that they will reduce their hedging.
Canada's Placer Dome Inc., the world's fifth-largest gold producer, said earlier this month that it was no longer going to hedge its gold production. Producers hedge when they expect the price to fall, so its decision is very bullish for bullion.
"We want to be clear about the need for the industry to show leadership and confidence in gold," Placer Dome president Jay Taylor says from Vancouver, British Columbia.
George Milling-Stanley, an analyst at the World Gold Council in New York, says similar positive statements continue to flood the market and buoy investor confidence.
Normandy Mining in Adelaide, Australia, has not entered into a new hedging contract for almost two months, reflecting its view that gold's long-term outlook is improving.
Johannesburg's Anglogold has also said that it is taking metal back, while South Africa's Western Areas Ltd. has closed out its forward sales of gold for the next two years.
Barrick Gold Corp. says it will continue hedging, but restructured its hedge book during the fourth quarter of 1999, cutting it from 18.8 million to 9.8 million ounces mainly through the purchase of call options.
"All of this is very positive for a sustained rise in the metal's price," says Mr. Milling-Stanley.
New York traders of precious metal equities report a surge of interest from U.S. investors. James Laverty, an emerging market equities salesman at Standard New York Inc., says the brokerage has seen strong demand for South African, Australian and Canadian gold shares.
Some investors, feeling U.S. markets are in for a correction "are thus starting to move into gold as a store of value and a hedge against inflation, which will further boost demand and the price," he says.
David Christanson, a gold analyst in the San Francisco office of Merrill Lynch & Co. Inc., believes the greatest value is currently to be found in countries like South Africa and Australia. Companies in those countries have given up most of the gains that came after the October announcement that European central banks would cap their gold sales.
Gold broke through the $300 an ounce level early this month, and was trading at $300.40 Thursday. Platinum hit a 10-year high of $549 an ounce earlier this month, while palladium traded at a record high of $815 an ounce.
This is due to strong demand for the metals and a continued unwillingness by Russia to export, which has led to increased tightness in the market. Russia is the world`s largest producer of palladium.
Heading Merrill's list of large-cap gold shares is Anglogold Ltd., the world's No. 1 producer, and No. 3 Ashanti Goldfields Co. Ltd. Anglogold is up more than 50% over the past year to about $27, while Ashanti has lagged, trading around $3.
Mr. Christianson cautions that the quicker the gold price rises, the greater the risk that the agreement between the European central banks to cap the sale of their gold holdings will unwind.
