Monday, October 15, 2007

Gold Price Shining Bright

Gold Price Shining Bright
David Urban

Newmont announced on Wednesday that they were going to acquire Canadian Gold Miner Miramar for $1.53 billion dollars. Miramar’s primary asset is a massive gold area in the Hope Bay area of Canada’s Nanavut territory where the total resource size may be in excess of 10 million ounces. At $1.53 billion dollars, Newmont is roughly paying $153/oz for each ounce of gold.

Expect more consolidation between gold majors looking to add significant deposits due to declining mine production and mid-tier gold companies looking to consolidate and become the next major.

Among the investment banks, UBS raised their target gold average to $760/oz in 2008, up from $650/oz and $700/oz up from $550/oz. and Citigroup just raised their average gold price for 2009 to $800/oz and $820/oz in 2010. The 2008 estimate of $750/oz remained unchanged. I see gold up 20% in 2008 and maybe another 10% in 2009.

A lot depends on the US elections but the trend is up. The Gold Price should retest the old high sometime in the 2nd quarter of next year with new highs made late in the year. 2009 should bring a test of the $1,000 level. After that the sky is the limit.

The gold longs have been holding strong in the face of some serious selling which looks to be drying up. This may signal the end of Central Banks ability to keep down the gold price. The key here will be capitulation by the jewelry buyers. Stores in India have been switching to costume gold jewelry and China is encouraging silver and palladium.

The central banks may just decide to step aside as they realize that as the US destroys its currency and they are forced to defend their own it makes no sense to sell gold into the market.

Last week I read an interesting article which bears mentioning for the long-term price of gold. Indian Union State Minister for Mines T. Subbarami Reddy told a seminar in India that the Indian Central Government has decided to stop the importing of gold and diamonds within the next 10 years and that the government plans on emphasizing the exploration of diamond and gold in the nation’s five gold and diamond states.

While this does not affect the price of gold today it is a significant piece of news that bears watching for the long-term.

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