Wednesday, December 22, 2010

Gold price to peak at $1500/oz: PwC- CommodityOnline

Published on: December 20 2010 12:30 GMT

LONDON (Commodity Online): The continuing bull run in gold price has been the most talked about commodities subject matter in 2010. Now, as the year ends to a close, there is heightened speculation, predictions and analysis going around the world as to where will be the yellow metal price in the year 2011.

While gold bulls like Jim Rogers have predicted that the yellow metal price would soar to $2000 in the coming decade, precious metals pessimists have often argued that gold price would crash, thanks to the inflated value that people are attaching to gold.

Now, as we enter 2011, the main questions are:
Is gold price going to surge or crash? Is gold price in a bubble?

Gold will continue to shine throughout 2011, but the price of gold will peak around $1,500 per ounce, says a new survey by global consultancy PricewaterhouseCoopers (PwC).

The survey that PwC carried out among top executives and investors of 44 mining companies said that gold price will continue to rise in 2011 as investors are confident about the intrinsic value of the commodity and thus they continue to pile money into the yellow metal.

But around 40% of the executives were of the opinion that though gold price will continue to soar, the price of the yellow metal will peak around $1,500 per ounce.

The survey, conducted by PwC's Canadian Mining Group, said that the correlation between the rising price of gold and the increase in merger and acquisition activity in the mining sector was the one similarity between the current gold price and that of the 1980s.

"Currently, our deals team is seeing a surge in M&A activity in the mining sector, and the 1980s were no different," the report said.

Here are some key points on gold price in the PwC survey:

**The price of gold will peak around $1,500 per ounce.

**There is a slight increase in the number of companies that hold derivative or forward sales contracts to lock in the price of gold. However, 64% of companies that indicated they do use derivatives or forward sales contracts are required to do so as an explicit condition of financing.

**Hedging remains unpopular as both AngloGold Ashanti and Resolute Mining both closed out their hedgebooks in 2010. One of the few companies bucking the trend is Sumitomo Mining, which extended their September 2009 options hedging to limit the company's exposure to varying gold prices between July 2012 and June 2013.

**Since investors want their shares in mining companies to benefit from gold prices increases, and since there are no clear signs of adverse price movements, why lock your company into such a contract?

**It will be interesting to see in the coming months if companies that have located marginal deposits of gold will kick-start their production-moving forward faster with a project then they would under ‘normal' circumstances.

**On stepping up gold reserves, 78% of respondents reported organic brownfield exploration, 54% favored organic greenfield exploration, and 37% supported acquisitions as their top three methods of replacing gold reserves.

**Majority of the companies responding to the survey said they are applying a price of $1,000 per ounce to their gold reserves.

**45% survey respondents said they will use proven and probable reserves as their base to support asset carrying values, while 52% will use proven and probable, "plus resources likely to be moved into this category based upon the company's track record (i.e. ‘value beyond proven and probable')."



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