Shares digital

Gold could hit $3,500 an ounce by 2012 if economic policies do not change, according to mining mogul Harry Dobson. The chairman of Aim-quoted Kirkland Lake Gold (KGI:AIM) claims the 240%-plus price rise since late 2000 is only the first stage of gold’s current bull run.

‘Gold is a report card on how a government is handling its affairs. Governments have been printing too much money for the past 20 years,’ says Dobson. ‘Gold always tells the truth.’

Dobson, who became a multi-millionaire from turning round troubled mining projects, says large gains in the gold price have been seen before, and will be seen again in the next three or four years. Gold jumped from $35 in 1970 to $200 in 1974, and then to $835 in 1980. Having then hit a low of $254 in 1999, gold has since started its new ascent.

The precious metal hit a record high closing price earlier this month at $909.75 per ounce. By the start of this week it had eased back to around $869 per ounce as the dollar strengthened against the euro.

Despite gold trading 4.5% lower than the record intraday high of $914 per ounce seen last week, bullion is expected to bounce back shortly as fears over a US recession intensify.

Metals consultancy GFMS believes the short-term gold price will exceed $1,000, driven by investment demand. It expects US interest rate cuts to add to gold’s appeal as it could drive the dollar lower. The metal price and the currency tend to move in opposite directions.

Investors in gold producers should expect related share price movements. Randgold Resources (RRS) has shown the strongest leverage to the gold price since last summer. Peter Hambro Mining (POG:AIM) has been more volatile in following the gold trend as the City doubts expansion plans can be delivered to target. Avocet Mining (AVM:AIM) has fared well and could do even better if it finds additional producing assets to buy with its $110 million cash pile.

Shares says: An ambitious forecast, yet all signs do point towards sustained price gains.

BUY Avocet Mining

HOLD Randgold Resources, Kirkland Lake Gold

TAKE PROFITS Peter Hambro Mining

by: Dan Coatsworth