08/04/2009 - 22:00

Gold price good but not forever

08/04/2009 - 22:00

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GOLD is seen as an attractive investment due to its strong performance in a down turning economy, but one senior economist has warned the good times will not last forever.

Gold price good but not forever

GOLD is seen as an attractive investment due to its strong performance in a down turning economy, but one senior economist has warned the good times will not last forever.

Speaking at the Australian Gold Conference last week, Westpac senior economist Justin Smirk said the metal was close to its peak.

"Gold is a good buy now as a hedge, but perhaps not for much longer in terms of comparison against other metals," Mr Smirk said.

He said the gold price would remain steady, whereas other commodities are likely to strengthen as the economy improves.

"The metal will need an outbreak of inflation to have a strongly positive future, but that means other commodities will also be benefitting at the same time and, I would expect, outperform gold in every way. So on that basis, we question the perception of its true value," he said.

In contrast, Hartleys senior economist Grey Egerton-Warburton was confident the gold sector would improve significantly in 2009.

Mr Egerton-Warburton said the rise in the metal's price had renewed investment interest in gold projects, after the sector had been adversely affected by rising capital and operating costs and staff shortages during the resources boom.

"An analysis of the share price returns of gold stocks since January 1 this year shows that gold stocks have significantly outperformed the All Ordinaries and the S&P ASX200 resources index, over this time," Mr Egerton-Warburton said.

Despite his positive outlook, he warned companies would find it difficult to raise finance from banks imposing tough terms and conditions.

"Capital raising strategies need to be better executed than ever before," he said.

Australian Mines executive director Brett Young said the company had recently changed focus from nickel mining to gold exploration in light of the poor performance of nickel and the strong interest in gold.

The company was in the process of raising $4.5 million through Patersons Securities on the basis of its exploration plans in greenfield gold exploration projects.

Catalpa Resources managing director Bruce McFadzean said its recent $34.1 million capital raising with major shareholder Lion Selection was made possible on the strength of its Edna May gold project in Westonia.

"From the debt side, the view that I got speaking to the banks was that they wouldn't have gone near us if we weren't gold," Mr McFadzean said.

"There are definitely a lot of gold bulls around."

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