Gold Fields CEO says bullion could hit $1,000

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Gold Fields CEO says bullion could hit $1,000

 

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Gold Fields CEO says bullion could hit $1,000

Wed May 31, 2006 4:33 PM GMT

By Eric Onstad

 

JOHANNESBURG (Reuters) - The gold price could hit $1,000 per ounce over the next few years, partly fuelled by hefty investment demand from oil producers with excess cash, the chief executive of South Africa's Gold Fields said on Wednesday.

Only after several more years of rallying prices would they probably return to equilibrium levels, but these would be double the level of previous down cycles, Ian Cockerill told Reuters.

He was clarifying comments made to a strategy presentation on Tuesday, when he said prices could move down to around $500 per ounce.

"I see the price continuing from these levels and moving higher, and in fact could move significantly higher over the next couple of years. I would not be surprised to see it going up into four figures in dollar terms, that's a very real possibility," he said in an interview.

The spot gold price surged by as much as 45 percent this year, peaking at $730 an ounce on May 12, but has fallen since then to trade at $658 per ounce on Wednesday afternoon.

"A longer term equilibrium price is closer to $500, if one looks at the fundamental level, but I don't see us being in any danger of getting to that level in the short-term, I see that as much longer term. I see the prices going higher from here not lower, and then going back (down)."

If gold eventually touched a base level around $500 per ounce, that would mean that the equilibrium price was twice the level compared to lows set in 1999 at around $250 per ounce.

"No market goes up forever and neither does it go down forever, but when it does ultimately pull back, we don't see it going back below the $500 mark, that's for sure."

PETRO DOLLARS DRIVING PRICE

A main driver of the current gold price, similar to 1980 when prices touched $850 per ounce, was from oil producing nations seeking a home for a windfall in revenues, he said.

"Excess petro dollars sloshing around in the Middle East was one of the principal drivers of the gold price back in the 1980s and over the last 12-18 months we've seen an increase in petro dollars in the Middle East," he said.

Many analysts see a correlation between a rising oil price, which can fuel inflation, and the price of gold, which is often seen as a hedge against inflation.

The price of gold has risen 160 percent since touching lows in 1999 while Brent crude futures have shot up 265 percent.

"Gold, despite having a fairly healthy run since 2001, is still incredibly cheap on the gold-oil ratio and I think there's still lots of upside potential just taking that into account."

Long-term investors such as pension funds were also now investing in gold, which should give the market healthy support if short-term speculators decide to liquidate, he added.

The recent correction in the gold price is healthy and could help revive jewellery demand if prices stabilise, Cockerill said.

"It's price stability, irrespective of price levels, that is important to jewellery demand... it's the volatility that kills jewellery demand, not the actual price itself," he said.

"The recent run-up in the dollar price was very rapid, a little bit quicker than I had anticipated, so I wasn't surprised to see this pull back."

Gold Fields Ltd is the world's fourth biggest gold producer, with operations in South Africa, Ghana, Australia and Venezuela.