The current gold price is way above average - Major
In 1969, at around $200 an ounce, gold was trading at its lowest ever level. Since then it has been rather a wild ride and, while it has been hitting records in nominal terms frequently in the last few weeks, the 1980 price of $2,000 in today’s terms was its zenith.So, where is it likely to go from here? Gold bulls will tell you that the way forward is ever upward; after all it is only half the way to its all time high. But, there are a some, like Cadiz Corporate Solutions analyst Peter Major, who are not that sure. Speaking on Mineweb Radio on Friday evening, Major said, "It may have touched $2,000 back then, but the world was a different place quite considerably compared to what it is now, and I’ll still say the long term price of gold going back hundreds of years is somewhere between $550 and $600. "So that fact that gold’s hit $1,000 means it’s trading way above an average. I’m wary of it going up much more from here," he says.If, however, you are a believer, and maintain that the price of gold is likely to go up further, Major does have some advice.If you do not know a lot about the investment markets, he says that a direct investment in bullion, through an exchange traded fund is probably the right way to go, "it’s less volatile, it’s safer and over time it’s going to give you the same or better return of the gold index."But he says, if you have the luxury of being able to watch the market closely and are prepared to take some more risk, then shares particularly the smaller ones can offer opportunity. "A small company always has a chance of adding production and when you add production you also decrease your overall cost per ounce, and that’s why companies should be able to beat the gold price over time, but you’ve got to be so astute and plugged in that unless you’re monitoring it on a daily basis, stick with bullion."Asked why South African gold stocks have not performed very well, Major, says the market has begun to realise that the odds are against many of these miners."They’re very large, they’ve got old, deep shafts, and so the market questions how much production they can add. "They are battling to stay production without decreasing, and the market knows these guys are having to pay 10% - 11% wage increases when inflation is almost half that now, that they’re going to get socked with another 35% - 40% increase in electricity over the next four years, so most investors realise the strong winds that the gold shares have against them so they’re not running them crazy when the gold price goes up.He adds that the rand also has a roll to play, a "strong rand means our producers are really going to battle and the longer it stays strong, the more they’re going to battle, whereas it’s not going to hurt bullion nearly as much.