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Gold a safe investment

Strong interest in Australian gold producers is helping to put the whole resource sector back in favour with investors.

Takeovers and speculation of takeovers are driving the strong gains gold-producing companies have enjoyed in the past six months, and it seems likely, given the actions and statements of overseas gold companies like AngloGold and Barrick-Homestake, that these games will continue.

But while the promise of quick gains is drawing some people’s money into the sector, attractive fundamentals are ensuring the recent rally is not akin to the “tech boom” of 1999/2000.

Local gold companies are profitable and many trade at quite acceptable price-to-earnings ratios (PER).

At $1.35, Perth-based Troy Resources is trading at a PER of just 10; Aurion (the merged Delta Gold and Goldfields) has a PER of about 11, and Lihir Gold, Equigold and Hill 50 Gold trade on PERs around 15.

Furthermore, each of these companies is trading at a price about double its low point for the past 12 months.

Despite lacklustre movements in the international spot gold price, gold in Australian dollars has been drawing more than $500 per ounce for the past year; and with most companies reporting production costs of just $300/oz, gold companies are offering one of the safest bets available for investors.

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