Analysts see further declines in gold price

The price of the precious metal, in the $41 0(US) per oz range at the start of the year, has been in a slump of late, recently hitting $359.75 in London and $363.20 in New York. Chart watchers have to go back to 1986 to find similar price levels. Further declines in the price are predicted by some analysts, making investors edgy and producers nervous — particularly the smaller companies.

“We’re still in a downtrend,” Bill Richardson, precious metals analyst with Brown Baldwin Nisker James Capel in Toronto, said. “The price is obviously being influenced by what is happening on the currency side.”

The “currency side” referred to by Richardson is the U.S. dollar, which has been gaining in strength. The rally recently shot the American dollar over the 2-German mark level for the first time in two-and-a- half years and to an 18-month high against the Japanese yen. Pricing factors

Toronto-based price forecaster Martin Murenbeeld of Murenbeeld & Associates wrote in a recent newsletter that gold prices rise during times of rising inflation and/or a declining U.S. dollar, and fall with low inflation and/or a rising dollar.

“U.S. inflation is not of great concern just now, and as the U.S. dollar keeps rising, foreign inflation rates are actually falling when translated into U.S. dollar terms — regardless of some pretty high monthly inflation rates we are seeing abroad. Accordingly, it is a rotten environment for gold,” says the normally bullish commentator.

Ron Coll, a precious metals analyst with McLean McCarthy of Toronto, offered similar observations and added that a further $5-$15 decline is possible. Strong support would be felt should the price fall to the $350 level, he feels.

By late summer, he said, there should be a turnaround. Coll said he is “cautiously optimistic” the U.S. dollar will have run its course by that time. “Late summer ought to be very healthy for gold prices,” he predicted.

Gold producers, he said, prefer a steady price for their commodity. He suggested a comfortable price for producers would be $400 (or better). The current average cash cost for senior North American gold producers is about $225 per oz, he said, with that amount rising to $280-$300 when administration and financing arrangements are figured in. Pressure eased

Richardson said he expects the price to remain around $360 for the near future. The public perception, he said, is that politicians and economists have been successful, at least temporarily, in checking inflation.

He also pointed out that in 1986, $360 proved to be a resistance level on the up side. It took more than a few months for the metal to overcome that price level, but once it did, the rally carried the price to just over the $500 mark in late 1987.

To the first week of May this year, gold in London was averaging about $392. For 1988, the metal averaged $437; in 1987, $446; and in 1986, $345. The gold price reached an all-time high earlier this decade when it hit $850 in January, 1980.

Gold is not the only precious metal which seems to have fallen out of favor. Silver, which has been struggling for some time with an oversupply problem, was recently trading around $5.10 per oz in New York. Platinum, too, has been in the doldrums, with the July contract on the New York Mercantile Exchange recently trading at just under $500 per oz. (Platinum averaged about $531.50 last year and $559 in 1987.)

Particularly hard hit by falling gold prices are producers in South Africa. Declining grades and rising costs are major concerns in that country, which turns out about 45% of world gold. It was reported earlier this year that while the more efficient producers will remain healthy economically, 12 -15 mines are about to start suffering losses.

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