Losing Luster

South African producer sales and softer demand will keep the luster off gold stocks

By Leo Larkin

We are downgrading most gold stocks to hold from accumulate based on a more pessimistic near-term outlook.

The S&P Gold and Precious Metals Index has fallen 11% so far this year (through Feb. 9), after declining 15.9% in 2000. That's weaker than the broader market: the S&P 500 index has slipped 0.4% year-to-date, after declining 10.1% last year.

We see renewed South African producer sales and a likely drop in physical demand exerting pressure on gold prices. The long-term fundamentals are intact as the CRB Commodity Index, PPI and CPI are still rising, and global output drops on lower ore grades and lower exploration spending. But with near-term prospects weaker, we are turning neutral on the group.

We downgraded Barrick Gold (


), Homestake Mining (


), and Newmont Mining (


) from accumulate to hold. We also cut Placer Dome (


) from accumulate to avoid.

Larkin is an equity analyst at Standard & Poor's

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