Back in July we noted that two big gold miners were pulling back on 2008 guidance. Barrick (NYSE:ABX) and Goldcorp (NYSE:GG) were both predicting production at the lower end of guidance and rising costs to get that gold out of the ground. But the current financial market turmoil could make gold the last refuge as investors have to put their cash into something other than low-reward money market instruments.
Bloomberg is reportingnew research today that gold prices could reach $950/ounce by the endof the year, up from yesterday’s close of $782.25/ounce. The rationaleis that equities will continue to be soft and therefore gold will rise.The desire to raise cash as the financial markets struggle also plays arole in the lower gold prices, as does the strengthening dollar.
Since July, Barrick and Goldcorp have seen their stock prices drop 32%and 26%, respectively, while gold prices have fallen about 15%. Risinggold prices should help both companies, but neither is going to be ableto overcome lower production and higher costs.
Barrick and Goldcorp are up sharply this morning, around 10%. But withthe DJIA down almost 300 points, investors are looking somewhere,anywhere for good news. Betting on gold is not very imaginative, but itechoes the old saying: No one ever got fired for buying gold.
There are also ETF plays that can be made if you genuinely believe inthe spot price of gold heading very far north again. The SPDR GoldShares (NYSE: GLD) tracks the price of gold bullion. It is no shockthat its price is up over 7% around $82.50 today.
Paul Ausick
September 17, 2008
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