Sky’s the limit for gold

Sky's the limit for gold

$2,000 gold. Who'd believe it?

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 21, 2012 3:09 pm AEST

Gold is on track to break through US$2,000 an ounce, and Australian gold miners could be poised to share in the bounty.

Deutsche Bank analysts have forecast gold prices above US$2,000 an ounce for the first half of 2013, driven by economic stimulus measures, low global interest rates and continued buying by central banks.

Deutsche says that China is expected to increase its holding from 1.7% of reserves to the global average of around 10%, and China's not alone. Apart from central banks, billionaires have also been buying, with John Paulson raising his stake in a gold exchange traded fund by 25%, while George Soros has more than doubled his holdings, according to US Securities and Exchange Commission filings. Hedge funds have also doubled their positions according to Bloomberg.

Chinese companies are taking stakes in gold miners around the globe including Australia. Shandong Gold forked out $227 million for a controlling stake in Focus Minerals, an established miner in Western Australia, while Zijin Mining, a Chinese gold producer, paid $230 million for Norton Goldfields last month.

The current stimulus measures in the US are likely to put upward pressure on gold. The US Federal Reserve has announced that it intends to buy US$40 billion of mortgage backed securities each month, until employment is strong enough. That could be 6, 12, 18 months from now or even further out.

Gold stocks have generally underperformed the price of gold, so they could be re-rated. Many have fallen heavily as gold came off its highs of close to US$1800 an ounce in February this year, and fell to below US$1,550 in May. Gold is currently trading around US$1,770 an ounce.

Source: www.kitco.com

If you believe in the forecasts and you're interested in getting some 'golden' exposure, Silver Lake Resources (ASX: SLR), Northern Star Resources (ASX: NST), Troy Resources (ASX: TRY), Red 5 Limited (ASX: RED) or Kingsrose Mining Limited (ASX: KRM), could all be worth a closer look.

If you're in the market for some high yielding ASX shares, look no further than our "Secure Your Future with 3 Rock-Solid Dividend Stocks" report. In this free report, we've put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

More reading

Motley Fool writer/analyst Mike King owns shares in Silver Lake. 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.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.