SOURCE: Resource Capital Research

Resource Capital Research

October 05, 2010 06:00 ET

RCR September Quarter 2010: Junior and Mid Tier Gold Company Research

Resource Capital Research -- Equity Research Report

DENVER, CO--(Marketwire - October 5, 2010) -

Key Points

Gold Market:

  • In the post GFC environment, gold has been the standout performer.
  • In the last twelve months, gold has risen by 29%, recently breaching the US$1,300/ounce level. Silver has soared 34% in the 12 month period.
  • Gold has benefitted from being a unique 'safe haven' in a period of universal mistrust of other major asset classes, including equities and bonds.
  • Gold's rises have been driven almost solely by safe haven investment demand.
  • With the US dollar under renewed pressure, gold should continue its upwards momentum -- we forecast US$1,325/oz for the remainder of calendar 2010.
  • Without on-going investment demand, gold's fundamentals are not strong.
  • Gold could continue to gain into the first half of 2011, but at some stage confidence will come back into equity markets, a new bull market will be signaled, and gold could head back towards US$1,000/ounce. Predicting when is the hard bit!

Gold Equities:

  • Gold shares have strongly outperformed most other equity market sectors.
  • In the past 12 months, Australian and Canadian gold indices out-performed physical gold, but the South African gold stocks have underperformed.
  • The Australian gold sector has been the star in the last six months- rising by 38% with the Australian gold price only up by 11%. In the last 3 months the Australian gold index is up by 16% despite the A$ gold price actually falling due the strong A$.
  • Aussie golds have been boosted by the removal of the mining tax, great exploration success, particularly in West Africa, and takeover activity highlighting value.

Analyst's Comment -- Gold Price Outlook:

"It's not easy predicting the gold price when it is regularly breaching all-time highs, driven by crisis-related fear," says RCR Senior Gold Analyst Dr. Tony Parry. "But who would bet against it right now when the markets don't have much trust in any other asset class? We expect further record-breaking gains through into the first half of 2011. However, if, and when, equity markets enter the next bull phase, (and that's a big 'if'), the need for a safe haven will dissipate and gold will come off. Predicting when that will happen is the hard bit!

"The most benefit from gold's glow has been seen with the Australian gold shares, which have soared in the last six months."

Resource Capital Research ("RCR"), an equity research company which focuses on small and mid size resource companies, today launched its major quarterly research report covering 17 gold exploration and development companies. RCR also publishes a quarterly Uranium Sector Review, Iron Ore Company Review, and soon to be released Copper Company Review.

To access the free summary of the gold report or to purchase the 78 page comprehensive report [A$110], go to www.rcresearch.com.au/reports.

Overview and Investment Comment

Gold Price Outlook

Gold has continued to set new records in the September 2010 Quarter, recently breaking through the US$1,300/ounce level. Currently (5 October, 2010) it is trading at US$1,315.00/ounce. Overall, the gold price is up 8.8% since the start of the September quarter, and in the last twelve months it is up by 29%.

Since the start of 2008 (pre-GFC), gold has stood head and shoulders above other major asset classes, appreciating by 55% while equity markets, the oil price, copper price (to name just a few) are still in negative territory or barely positive over that period.

So how does one go about predicting the gold price from here? In this Review, we argue it is no longer about analysing gold's fundamentals, but more about analysing market psychology, the almost total lack of trust in most asset classes, and the predominance of a 'crisis mentality.' At the moment it seems that gold (and other precious metals), as safe havens, are virtually the only investment vehicles that can be trusted.

If other asset classes start to regain the market's trust, the need for a safe haven is reduced. In this scenario gold's fundamentals look precarious. That will happen in time, and we believe gold will eventually come off and re-test US$1,000/ounce. However, it is hard to bet on this happening in the short-medium term, particularly with the US dollar under renewed pressure and sovereign debt fears that won't dissipate for some while. So we think gold could continue to set records. Our expectation for the balance of calendar 2010 is US$1,325/ounce. Into 2011, higher prices could prevail in the first half, but eventually the gold's unique safe haven appeal will start to dissipate, our guess (and it is only a guess!) in the second half of 2011.

Gold Equities

As the table below indicates, the Australian gold shares have out-performed strongly over the last six months, and particularly in the last month, due to corporate activity, record gold prices and the restructuring of the proposed 'super profits' tax. The South African gold stocks have consistently underperformed -- returns in physical gold have been superior to holding South African shares. The sniff of corporate activity does not seem to have drifted into the Canadian gold sector as yet, which has been relatively subdued in the last three months and under-performed gold.

About Resource Capital Research

Resource Capital Research ("RCR") (www.rcresearch.com.au) was founded in 2004 and is based in Sydney. RCR provides investors with in-depth reports on current investment opportunities in the mining sector both in Australia and globally. The focus is on small and mid cap resource companies, within the gold, uranium and tin/tungsten sectors, ranging from exploration stage, through development and production. John Wilson, the principal of the firm and analyst, has over ten years' experience analysing mining companies in Sydney and on Wall Street including for major investment banks. Dr. Tony Parry, Senior Gold Analyst, joined RCR in early 2008. Tony has extensive experience in mining equity research, equity sales and mining corporate finance (working in London for five years and subsequently Perth).

The report is available at www.rcresearch.com.au. The next Gold Company Review will be published in the December Quarter, 2010.

Contact Information

  • For further information please contact:

    Tony Parry
    Senior Gold Analyst
    (+61 (0) 417 965 026)

    John Wilson
    Managing Director

    Resource Capital Research
    Phone: (+61- 2) 9252 9405


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