Gold Fundamentals Still Strong

S&P is positive on select gold mining stocks because of lower output, weak financial markets and increasing demand for the metal

By Leo Larkin

Gold futures -- and stocks of gold mining companies -- sold off after Wednesday's Bank of England auction of gold reserves. S&P believes the recent drop in the price of the metal - and of stocks of producers -- reflects lower lease rates and a sell-off in the Chicago CRB Commodities Index.

S&P thinks a break below the recent low price of $252 per ounce reached in August 1999 is unlikely, and that any such break is unsustainable since the current price is some $100/oz. below replacement cost.

Fundamentals for gold mining stocks, and the metal itself, are positive on lower output, weak financial markets and a deficit in supply versus demand.

S&P is still positive on selected gold stocks and has 4 STARS (accumulate) recommendations on Barrick Gold (ABX ) and Newmont Mining (NEM ).

S&P also has 3 STARS (hold) recommendations on Homestake Mining (HM ) and Placer Dome Inc. (PDG ).

Larkin is an equity analyst for Standard and Poor's

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