Gold Stocks Regain Their Shine

Gold stocks are back in vogue, with miners of the precious metal rising 25 per cent more than the ASX’s biggest companies this year.

But doubts linger about how much further the rally can go.Gold prices hit a three-week high, rising 0.6 per cent to $US1328.30 an ounce, on Monday amid increased fears about tensions between Russia and Ukraine.

So far gold prices have bounced about 10 per cent this year compared with the S&P/ASX 200 Index rising 1.4 per cent.

ANZ head of commodity research Mark Pervan attributed much of the gains to a steep sell off among gold exchange-traded funds (ETFs), which sold about 30 per cent of their holdings late last year as US bond yields hit 2 1/2 year highs.

''So gold prices come off about 25 per cent last year,'' Mr Pervan said. ''But that's completely unwound now. We have seen a fair bit of momentum taken out of the US bond markets.''

Bond markets rallied amid increased speculation US would soon raise interest rates as the Federal Reserve hit full throttle on tapering it's asset buying program. But all has not gone to plan this year, with a wave of poor US economic data and the Fed suggesting it might not be as eager to trim its stimulus.

However, while the gold price has bounced thanks to ''opportunistic buying'' from India and China, Mr Pervan said ETF holdings ''haven't really taken off''.

Instead, he said the has been a swing back into equities, after ETFs knocked the momentum out of the gold equity markets for much of the past decade.

''With the volatility around ETF value ... or holdings last year probably has caused investors to re-weight a little bit more into equities.''

UBS commodity analyst Daniel Morgan agreed, and said the rise in ETFs over the past decade had diminished investor appetite for gold equities.

''Since that time I think there has been a spotlight on the other risks of owning a gold equity. You have got the production risk, the geological risk, you might have the sovereign risk depending on where your deposit is. All sorts of other risks other than the gold price. And the gold equity premium that people used to talk about a couple of years ago seems to have been eroded,'' Mr Morgan said.

But the pair differed on how much more gold could bounce. Mr Morgan said UBS's target was an average price of $US1300 an ounce this year, falling to $1200 in 2015.

However, Mr Pervan said ANZ was ''reasonably optimistic'' that gold could add another $US100 an ounce to finish the year about $1450.

But he said that forecast hinged on the strength of the US recovery.

''The market is pretty fickle when it comes to US interest rate outlook. It only needs one or two months of good US data and everyone is talking that interest rates are on the way up again.''

But he expected concerns about's China's economy to ease in the second half of the year, which would support commodity prices.

Mr Pervan said while Chinese authorities have been cautious in stimulating their economy, he expected some kind of program.

''The Chinese story is a little bit glass half empty. The market is concerned about the way they are tackling shadow banking and growth targets.

''But China has still got a massive amount of activity to do. This is probably just a road block at the moment that they are dealing with, and then they will get back on to the train and away it goes again.

''I'd be careful not to do discount the China story, that's for sure.''

Newcrest, Australia's biggest gold producer, was trading 0.3 per cent higher to $10.78 on Monday afternoon. Meanwhile Medusa had firmed 0.8 per cent to $1.95 and Resolute had gained 1.6 per cent to 62¢.

Source:- smh.com.au