Fears Over Japan Rekindle Investors' Interest In Gold

Sydney Morning Herald

Tuesday April 7, 1998

By KATE ASKEW Resources Writer

Gold stocks soared yesterday as brokers forecast a continued rise in the price of the precious metal to as high as $US320 an ounce and recommended investors go overweight in the sector.

Gold for three-month delivery on the Comex division of the New York Mercantile Exchange jumped $US6.10 to $US310.30 over the weekend after Moody's Investors Service threatened to cut Japan's credit rating. Spot gold closed in Sydney yesterday at $US309.30.

Moody's comments prompted investors to switch out of yen- denominated investments in the face of a declining economy into gold, which is seen as a store of value and a buffer against currency investments.

Brokers' analysts have recently changed their views on gold because of a number of factors, including fading fears of further central bank sales, US hedge funds closing out short positions and concern over Asian currencies.

SBC Warburg Dillon Read, which has held a bearish view on gold, recently upgraded its price forecasts, partly based on its belief that the governing council of the European Central Bank would have to approve any gold trades by member countries.

This comes on the back of comments by Italy's central bank that it believes its gold reserves are sufficient and it will not need to cut its gold stocks going into European Monetary Union. While there had been speculation that member countries would hold only 5 to 10 per cent of their assets in gold, analysts are now estimating they will back the currency with between 20 and 30 per cent.

On a conference call with institutional clients SBC Warburg Dillon Read's head of political research, Mr Stephen Yorke, said he believed most central bank selling of gold had already occurred. The non- reaction by commodity markets to the Belgian central bank's gold sales had buoyed sentiment, as had speculation that several Asian banks were buyers of the metal.

Deutsche Morgan Grenfell also is revising upwards its price forecasts, after upgrading the general outlook for the sector and recommending institutional investors take an overweight position in gold stocks.

It has upgraded its recommendation on Lihir Gold to a trading buy.

The Gold index yesterday surged 82.3 points to break the 1300-point mark at 1301.40, led by big gains in blue-chip gold stocks such as Newcrest Mining, Lihir Gold and Normandy Mining. Lihir was the best of the big miners, rising 23c to $2.28, while Normandy gained 10c to $1.76.

Newcrest continued its strong gains of last week, adding 33c to $2.88.

The stock has risen more than 70 per cent this year.