Major boost for gold producers -price expected to soar

Gold producers, who have been reeling because of low prices and escalating production costs, could have a major boost this year as the price of the precious metal is expected to soar. It has already surpassed the $500 an ounce mark for the first time since 1987, and some predictions are that it could soar to a record high of US$850 an ounce before the end of March.

Gold averaged US$445 an ounce last year but local producers only started benefitting after the Reserve Bank of Zimbabwe reviewed its skewed exchange rate in the fourth quarter. There had been complaints that the Zimbabwe dollar was overvalued. Producers were therefore not benefitting from the increase in the price of gold on the world market.

Though the world price sank to a low of US$258 an ounce in April 2001 it started picking up, rising to US$333.52 by the end of 2002. It rose to US$407.45 by the end of 2003 and to US$442.34 by the end of 2004. It had surpassed US$500 an ounce by the end of last year and was trading at US$559.30 at the beginning of this week.

Barclays Capital says the price should soar to US$600 before declining to around US$470 an ounce and should average US$525 this year.

Other market players are more optimistic. Merrill Lynch predicts it should reach US$725 an ounce by 2010. Newmont, which is reported to be the world’s largest producer, says the price should rise to over US$1 000 an ounce in the next five to seven years.

John Turk, publisher of Freemarket Gold and Money Report is even more optimistic. He says the price of gold should reach a new record high of US$850 an ounce before the end of March.

Local gold producers received a major boost in the fourth quarter of last year when the central bank allowed them to retain 40 percent of their earnings in foreign currency accounts. They were required to sell the remaining 60 percent to the central bank at the interbank market rate.

The Interbank rate which kicked off at Z$60 000 to the greenback at the time of the announcement has since fallen to nearly Z$90 000.

The rise in the price of gold on the word market as well as the favourable exchange rate should provide an incentive to producers as gold production had been on the decline. The central bank said deliveries to the bank in the first nine months of last year stood at only 10.51 tonnes, down from 16.4 tonnes the previous year. It said the decline was largely due “to leakages into the parallel market”.

Finance Minister Herbert Murerwa said the mining sector was expected to register a decline of 5.7 percent in 2005 largely due to deteriorating international mineral prices, “rampant smuggling of gold, diamonds and other precious minerals”.

“With gold accounting for 44 % of the country’s mineral production, government will intensify its surveillance and remedial measures to plug off rampant leakages in the industry,” he said.

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