Gold surge a bet on oil fallout

GOLD and oil prices have both risen in recent times and markets have been quick to jump on board local stocks in both commodities. But longer-term price sentiment on at least one of these could cause an investor rethink. Bullish expectations about the long-term sustainability of the record oil price have spawned a number of new local oil floats, but inflationary fears have also led investors to seek shelter in the safety of gold, sending the price of bullion as high as $US466 an ounce this year. HBOSA chief economist Alan Langford said gold’s recent surge to some extent represented a bet on the inflationary effect of the higher oil price. Prices of WA gold stocks soared last week when the $US gold price broke through $450 an ounce. Those to record higher prices included WA producers Croesus Mining, Troy Resources and St Barbara Mines. Oil, on the other hand, has enjoyed a lot more investment attention in the market with a number of new local floats on the Australian Stock Exchange. Its price has hit all-time nominal records of $US70. Recent WA oil floats include Baraka Petroleum, Elk Petroleum, Louisiana Petroleum. Perth-based Incremental Petroleum is trying to raise $61 million with an October 20 pro- posed listing date. Cen-tral Petroleum is aiming to raise $25 million and is planning to list on November 1. “Oil is a bit different”, Mr Langford said. A thorn in the side of commuters, the higher oil price is widely tipped to remain at current levels for at least the medium-term, he said. Mr Langford said his view of a more transitory elevated gold price represented the market wanting to have a bit each way. Inflation in Australia was recorded at 2.5 per cent in the year to June 30, the middle of the Reserve Bank’s target band. And the RBA has indicated it is unconcerned at this stage about the broader implications of the higher oil price on the Aust-ralian economy. Despite oil’s inflationary expectation effect on gold there are, however, still plenty of forecasts attrib-uting gold’s rise to a predicted weakness in the base metals sector over the medium term. Hartleys resources analyst Simon Tonkin said a component of the higher gold price could be a result of investors getting “itchy” about some of the forecasts on base metals for the next 18 months. Hartleys is forecasting the price of most base metals to decline over the shorter term, with the price of nickel expected to drop to the $US3.75 a pound level by the end of 2008. Another predicting lower base metal prices is the Australian Bureau of Agriculture and Resource Economics, which recently noted that the ‘backwardation’ (when the futures price is below the spot price) on the London Metal Exchange increased to more than $US300 a tonne in mid-June, reflecting the fall in copper stocks to their lowest level in 18 months.

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