Not everyone thinks gold is a quasi currency and heading to $3,000 an ounce.
Some people are expecting a pull back from its record high.
Take Julian Jessop, chief international economist at Capital Economics, writing in Thursday’s FT.
“The EU rescue package has averted an imminent financial meltdown in the eurozone, while at the same time the required fiscal tightening will keep inflation subdued.
“With global growth and commodity prices also set to fall as the policy stimulus fades in other key economies, including China, gold should lose the support it has gained as an inflation hedge.
“Unless the government of a major economy actually defaults, or the dollar collapses, we expect gold to drop back to $1,000 by the end of 2010.”
And is this another sign the gold price might have got slightly overcooked?
At next month’s quarterly index review it’s possible that two gold companies could join the FTSE 100 and one the FTSE 250. The companies – in order of size – are recently floated African Barrick Gold, the absurdly renamed Peter Hambro Mining (Petropavlovsk) and Centamin Egypt.
Which means the days of having only Randgold as the default large cap UK gold play are coming to a close, says broker Canaccord.
This morning, we have learned that Centamin have been cleared on UK domicile rules and so will be eligible to enter the FTSE250 on June 9th, which considering the market cap and liquidity it should do comfortably. Also, African Barrick Gold will be eligible on the same date to enter the FTSE100 and Petropavlovsk is highly likely to be eligible for entry on the same date.
Although, given the vaugaries of the FTSE Ground Rules these things are never confirmed until they are confirmed, a point Liberum Capital has been stressing to its clients this morning.
Given the strike price of $17.72 vs. the current POG share price of $19, it is in the holder’s interests to exercise their warrants. If all were exercised, it would add 8.3m shares (c.5%), or £106m to its market cap. This would take its market cap to £2,435m or 93rd position in the FTSE 100.
While December demonstrated the dangers of expecting inclusion to the FTSE 100, it will once again raise that prospect if the gold price remains strong, and judging by the move in the warrants yesterday (+70% on much higher volume), the market is beginning to give weight to this prospect.
Petropavlovsk a blue chip company. What ever next?
Jessop may well be right.
Related link:
The devalued euro, in real terms – FT Alphaville