Commodity Online
JOHANNESBURG: Even though experts and analysts are predicting some collapse for gold mining companies’ shares in the equity market, nothing seems to bother investors as they flock to gold shares without much concern.

But there are risks involved in it. Despite, negative reviews several gold shares are doing extremely well in the stock market.

Price of South Africa’s AngloGold Ashanti is up by 200% (in dollars) since October 2008. That is despite a poor rating by analysts.

The share price of British American Tobacco (BAT), which enjoys a nearly perfect rating, performed poorly over the same period even against a very weak US dollar.

However, experts writing for MiningMX advise that investors in gold shares mustn’t try to be too smart with their own analysis and selection. Buy and sell the share as your faith in gold and the US dollar goes up or down. Also think about the price of gold shares in US dollars. For those who believe in gold, gold and gold shares are in fact there to protect investors against the US dollar, whose value can only fall now that the United States is issuing new dollars and creating credit at an unprecedented rate.

Fundamental considerations should definitely not play any role in the choice of a specific gold share. Traditional investment values, such as dividend yield, apparently don’t seem to count in determining the value of a gold share.


According to MiningMX, the market value of gold shares, even though it’s now already being expressed in billions of dollars, is still relatively small compared with other investments. The total market capitalisation of the seven shares in Smartmoney’s diagram is just over $130bn. The market value of Microsoft, one of the US’s biggest listed shares, is $185bn. Even Buffett’s Berkshire Hathaway weighs in at $116bn.

Investors who prefer smaller gold mines, those previously called marginal mines, will see there’s nothing much on the JSE besides the three big guns of AngloGold, Gold Fields and Harmony. In fact, Harmony, with its market value of R41bn or around $5bn, should also appear on Smartmoney’s diagram. If those three are omitted there are 13 other gold mines the JSE could place in the gold mining sector: most are almost a joke.

The choice in gold on the JSE for prospective investors who don’t like the three big guns is limited to Great Basin Gold, DRDGOLD, Simmer & Jack and Witwatersrand Cons Gold.

Gold itself,  since its low in October last year, its price has increased from $725 to currently just under $1 000 - is often a safer option if investors aren't sure of the driving forces behind the share prices of individual gold mines.

For a direct investment in gold, Absa's NewGold is certainly the easiest alternative. Proof Kruger coins, obtainable from the SA Mint, are also a good investment and it's nice to boast owning the nice case and the shiny gold coins, which now cost nearly R10 000 each.
(Source: MiningMX)