Glistening: Gold price hits new highs

Low-cost producers to shine

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published September 12, 2012 12:42 pm AEST

The gold in your rings and bracelets is more valuable than you thought. The price of gold has risen to near six-month highs, and is currently trading around US$1,735 an ounce.

Market expectations of further stimulus measures in both Europe and the US have seen the price of gold rise further. US policymakers are expected to announce as early as Thursday that they may take steps to keep interest rates low.

Since the US Federal Reserve first used quantitative easing as a means to encourage growth in 2008, the price of gold has more than doubled, hitting a record high of US$1,920 an ounce in September 2011. With the US dollar weakening and investors trying to avoid troubled European currencies, central banks have been aggressive buyers of gold.

Hong Kong's July gold shipments to China nearly doubled from a year ago, while gold exports over the first seven months of this year have already exceeded the total volumes for 2011. India is the top gold consuming nation, but looks like it will be rapidly overtaken by China.

In the past few weeks the US Republican Party has even called for a commission to look at returning to the gold standard for the first time in 30 years, as a way of setting a fixed price for the US dollar against the gold price to improve monetary stability. Its unlikely to happen, but should it go ahead, based on the supply of gold held by the US government and US monetary supply, it would likely mean the price of gold would surge to more than US$10,000 an ounce, and the US dollar's credibility could vanish.

So what is the outlook for the gold?

While the major global economies are struggling to grow, and Europe seems mired in its debt issues, its likely that the price of gold will remain around the current prices. If the US decides to stimulate its economy, then gold is likely to rise.

For low cost Australian gold miners, now's their chance to shine. Kingsrose Mining (ASX: KRM) recently reported its cash cost of producing gold at an amazing US$254 an ounce, while Medusa Mining Limited (ASX: MML), Troy Resources (ASX: TRY) and Northern Star Resouces (ASX: NST), all make more than US$1000 an ounce after production costs. Their shareholders will be cheering the current gold price.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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