Perfect storm for rally in gold sector: Confluence of factors
Financial Post - Canada; May 17, 2001
BY JACQUELINE THORPE



The U.S. economy is in trouble, inflation is on the rise and the U.S. dollar is falling. Life is looking up for gold.

Fuelled by such seemingly pessimistic concerns, gold prices jumped to a two-month high yesterday, pushing shares of North American gold miners to new highs for the year.

"It's back, just when everyone buried it and gave up on it," said John Ing, president of brokerage Maison Placements Canada in Toronto and a perennial gold bull who figures gold is headed back above US$300 in a few months.

June gold futures in New York rose US$3.90 to US$272.40, their highest mark since March 13. Spot bullion also closed higher. The Toronto Stock Exchange's gold and precious minerals index closed up 4.5% to a new 52-week high, bringing its gains for the year to 17.6%.

The mid-sized gold companies were the biggest gainers, with Kinross Gold Corp. (K/TSE) up 23.2% on the day, Meridian Gold Inc. (MNG/TSE) up 13.7% and Glamis Gold Ltd. (GLG/TSE) up 10.8%. Mr. Ing said a combination of factors was breathing life into gold:

- The fifth U.S. interest rate cut this cycle on Tuesday indicated the economy remains in trouble and gold is seen as a safe haven. Paradoxically, those rate cuts might fuel inflation down the road while higher energy prices are already putting pressure on the system, also making gold a safe haven.

"There is a whiff of inflation in the air. There's no doubt about that," Mr. Ing said.

- The technical charts are looking good, with the London afternoon fix breaking through the 200-day moving average last week.

- Britain's auction of 20 tonnes of gold on Tuesday was 3.7 times oversubscribed showing strong demand.

"You combine all that against the backdrop of a still very expensive world, not withstanding the crash in Nasdaq and all that, and gold is actually undervalued," he said.

The icing on the cake for a gold rally however, is a faltering U.S. dollar, Mr. Ing said. Gold is an obvious alternative and also becomes less expensive for non-U.S. dollar-based investors since gold is priced in U.S. dollars.

"My expectation is that the dollar is the last bubble to burst and when that takes place that will be the last impetus to take gold through US$300," he said, targeting that price in the next couple of months.

Brian Christie, senior mining analyst, precious metals at Canaccord Capital, said the jump in shares of the intermediate producers may be ending their run and would opt instead for the larger players like Barrick Gold Corp. and Placer Dome Inc. or the smaller players.

Grüße

AU



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