PWC: "The gold rush" will continue in 2011 as well

Mining companies all over the world expect the current high gold prices to persist throughout 2011, according to the PwC Global Gold Price Survey. 82% of the gold manufacturers expect gold output to increase this year. Almost 75% of gold mining companies expect the price of gold to rise until the last quarter of 2011.

However, in inflation adjusted terms, the current price of gold remains below that of the year 1980. Expectations of mining company officials range from 1400 to 3000 American dollars an ounce. 40% of the respondents expect the price of gold to reach around USD 1,500 dollars an ounce.

"Given the great demand for gold, it would be interested to see if those mining companies that have uncovered marginal gold deposits will begin producing gold at a higher pace than they would under normal market conditions", commented Alexandru Lupea, Partner, Audit services, leader of the Energy and Mining Industry and Utilities Group of PwC Romania.

The poll by PwC shows that 70% of the gold miners intend to use their additional cash raised thanks to the high gold price to uncover new deposits or to extend their current deposits to ensure a high replenishment rate of their gold reserves. The main strategies used are brownfield organic exploration (78%), meaning the expansion of already active exploitations, greenfield organic exploration (54%), which involves searching for new gold deposits, and mergers and acquisitions (37%).

"Last year we had a significant increase in the number of deals in the mining sector, a trend which resembles the one that took place in 1980, when the price of gold peaked", Lupea added.

The concerns over the fragility of currencies, in particular that of the dollar and of the Euro, are contributing to a rise in the price of gold. The considerable budget deficits and the rising public debt in the US and in Europe, are putting pressure on the Euro and the US dollar. As a result, an increasing number of states is turning to using gold as a substitute for their foreign currency reserves. Countries rich in natural resources may increasingly favor gold to limit the strengthening of their own currencies and may expand their money supply to finance their purchases of gold. States that don"t rely on the exploitation of their natural resources, but are strongly reliant on exports, could adopt similar strategies, taking into account the fact that weakening their domestic currencies could help them keep their exports competitive.