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Merrill Lynch now BULLISH on gold -- uh oh! LOL

In a 10-page report titled"SA Gold: Sector Upgrade on Upward Revised Gold Price," just issued this morning, ML has raised its outlook on POG as follows:

"In light of the continued strong fundaments for gold, we have upgraded our gold price for 2004 by 12.1% to US$435/oz (previous US$388/oz) and 2005 by 20.5% to US$440/oz (Previous US$365/oz)."

Furthermore, ML has become very bullish on South African Gold stocks, in some cases changing thier recommendation from sell to buy in one feel swoop. Here is what they're saying:

"Based upon short and long term gold price fundamentals, re-establishing the SA discount to
the N Americans and setting a 2.1x P/NPV target for SA stocks in 12-months, (N Americans
at 2.5x) we have upgraded some recommendations.

• AngloGold ~ Including Ashanti (estimate), Upgrade Neutral to Buy;
+1yr NPV = ZAR184/sh (Prev R120/sh). Price Target = ZAR386/sh,
28% share price upside plus 3.0% dividend, Total return 31%.

• Harmony ~ Upgrade Neutral to BUY
+1yr NPV = ZAR78.41/sh (Prev R49/sh). Price Target = ZAR165/sh,
42.5% share price upside plus 2.0% dividend, Total return 44.5%.

• Durban Deep ~ Upgrade from Sell to BUY
+1yr NPV = ZAR16.67/sh (Prev R5.70/sh). Price Target = ZAR33.3/sh,
33.4% share price upside plus 0% dividend. Total return 33.4%.

• Western Areas ~ Upgrade from Sell to NEUTRAL
+1yr NPV = ZAR26.54/sh (Prev R18.24/sh). Forward calculated price = ZAR50/sh,
29.7% share price upside plus 0% dividend. Total return 29.7%.

• Gold Fields ~ Includes Mvelapanda Cash, Retain Neutral
+1yr NPV = ZAR57.52/sh (Prev R37.145/sh). Forward calculated price = ZAR121/sh,
22.8% share price upside plus 2.0% dividend. Total return 24.8%."

So, they're basically issuing BUY recommendations on AU, ASL, HMY, and DROOY.

Finally, the summary reasons for the change in their opinion are:

"Our improved gold outlook is based on several factors including:
1. US$ weakness, ~ FX team see EUR1.40/US$ as possible.
2. Low interest rates ~ Periods of low or negative real US rates are positive for gold price.
3. Positive Supply/Demand drivers, including:
• Declining mine supply ~ Poor investment over many years.
• Modest rebound in fabrication demand ~ A deregulating China could be key.
• Stable central bank sales ~ We see Washington accord being renewed.
• Continued dehedging ~ Low contango and rising price deters producers."

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