JOHANNESBURG – Controversial gold analyst Nick Goodwin has turned bullish on gold metal and shares, calling for a run in bullion to $400/oz before the end of the year; but he warns that his optimism is only temporary. “Gold shares are going to run, but it’s only a bear market rally,” said Goodwin, a gold analyst at Johannesburg stockbroker Tradek. Goodwin said weakness in the US dollar, precipitated by a crash in the Dow Jones Industrial Average to 8,000 points from current levels of about 9000, will be the catalyst for gold strength.
“The dollar’s only pausing for breath on its way down; Gold’s ready for another run and should touch $400/oz,” said Goodwin.
The dollar was around $1.135 to the Euro today. Goodwin said the weakness in US equity markets would force the US currency progressively lower for the remainder of this year. He said it would fall to $1.25 and then to $1.30 to the Euro.
“The dollar weakness is going to help gold get to $370/oz and that’s a crucial level, because there are a lot of hedge positions there and a lot of serious mark to market losses on those hedge books,” said Goodwin.
In a twist which should please his disillusioned supporters, Goodwin said trading activity on the bullion market suggested large gold producers were “fighting like mad to keep it below $370/oz”, to protect hedge positions. “If it makes its through there, it’ll touch $400/oz but it will struggle to hang onto that level,” he said.
He said gold’s failure to break through $400/oz convincingly, would see it “drift down”.
Goodwin said the JSE gold index would climb from its current level of 2182 points, to 2,800 points as it tracked the higher bullion price. He said the index would then go into freefall as structural weaknesses hit South African gold producer margins, and would bottom out at about 1,300 points.
“The index going to come down; it should bottom out some time in 2004 because there are just problems with South African gold companies,” he said.
Among the factors which would erode the gold producers’ margins were a strong rand, declining grades, wage increases, the hidden cost of implementing black empowerment legislation and large capital expenditure projects which producers were committed to in order to maintain their production levels.
Wrong call?
Goodwin, revered by gold bugs the world over as a bellwether gold bull, was on the receiving end of a fierce backlash from erstwhile supporters, when he turned negative on the gold shares in March last year.
He told clients to flee into put warrants to escape a JSE gold index which was to crash from its level then of 2,800 points, to 1,900 points. No sooner had he made the call, than the index gained another 800 points to peak at 3,600 points. Goodwin is unrepentant about the opportunity loss. “Remember, I was calling (the gold index) from 700 points,” he said. “Above 2,800 it was in the last throws of a bull market. Everything above that was euphoria.” The index then crashed to 1,782 points on 29 April this year. Goodwin says the rise he has predicted to 2,800 points is merely a “bear market rally”.
