Adrian Day's Golden Outlook

07/11/2003 12:00 am EST


Adrian Day

Chairman and CEO, Adrian Day Asset Management

Adrian Day is an expert in natural resources. In his Global Analyst service, he follows a wide range of factors--from currencies to geopolitics--that could impact global resource markets. In his latest update on gold, he remains cautious for the sort-term. Long-term, he is bullish, in part due to potential demand in China.

"Since the big drop from the end-January high, gold has been trading conversely to the dollar. And while gold could fall to the $330 level if the dollar rallies to the 1.08 area, investment demand and other fundamentals favor gold over the next year and more. The potential now exists for a renewal in physical buying; gold is relatively inexpensive in most foreign-currency terms and is at its lowest price relative to the Euro in two years--making it attractively priced for non-US investors.

"From a long-term perspective, changes are underway in China that could lead to a huge increase in the buying of gold over the next five years or so. As of June 1, Chinese citizens or companies are now able to buy physical gold. Since China has a very high savings rate and a long historical affinity for gold, the changes could be an extremely powerful boost to world gold demand. China last year was the third largest consumer of gold behind India and the US. But on a per capita basis, the gold demand is the lowest among all recorded countries.For now at least, we note that China is not a free international market and prices for gold may be different from the world market. Over time, however, the development of an active market in China will realize the huge untapped potential for added physical demand.

"What are the best buys in gold? Most seniors are significantly above prices obtaining at the beginning of the year, and have held up well in recent weeks, but one which has not, because of its own peculiar difficulties is Meridian (MDG NYSE). If you are underinvested in gold stocks, this would be a good buy. Also, explorer Virginia Gold (CA:VIA Toronto) is at a great buying level."

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