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Gold market manipulation noted in Russian press

Section: Daily Dispatches

Soaring Gold Makes Mining Stocks a Risk

By Catrina Stewart
St. Petersburg Times, Russia
Tuesday, October 2, 2007

MOSCOW -- Gold prices rocketed to a 28-year high last week as Severstal tightened the screws in its battle for gold miner Celtic Resources.

On Friday, Severstal upped its bid for Celtic, prompting feverish activity on the London-listed company's stock. The steel firm's march on Celtic comes amid a week of bullish forecasts on the gold front.

Goldman Sachs raised its six-month forecast on gold to $800 per ounce earlier in the week, as the plunging dollar sent investors into gold as the next best thing.

"Here you have a choice between a paper currency that's depreciating and a tangible asset," said Erik DePoy, strategist at Alfa Bank. "The question is how much resistance we will see on the part of central banks.

"There is the view that central banks have been managing the gold price," DePoy said. "They sell their reserves to keep prices down [and to] dampen inflationary expectations. They are playing a psychological game."

On Friday gold was trading up at about $739 per ounce.

But it wasn't making a lot of difference to Russian gold stocks. Polyus Gold has been one of the poorest performers among the gold plays. Michael Kavanagh, a metals analyst at UralSib, said the gold price had little bearing on the company's stock price, given that most of its growth is long-term. It is not expected to show an increase in production until 2009 or 2010.

"In general, Russian precious metals stocks wouldn't be the best bet in a rising price environment," Kavanagh said, noting that they have displayed limited short-term growth potential.

Meanwhile, the RTS index continued to perform well, edging closer to an elusive 52-week high of 2092.71 points.

It closed the week at 2071.80 points. The MICEX, on the other hand, was fractionally down on the week, from 1759.46 to 1759.44.

On the base metal front, Chelyabinsk Zinc and Norilsk Nickel led the pack in one-day gains. Norilsk has been one of the sector’s success stories, analysts said.

Norilsk's gains come on the news that it plans to quadruple nickel production at one of its South African mines. But recovering nickel prices also helped, hovering at about $31,500 per ton Friday.

Following the recent Fed interest rate cut, emerging markets have rallied across the board.

The cut "was a catalyst for everything," Kavanagh said. "Everything related to growth and commodities has gone through the roof."

But by Friday, Goldman Sachs downgraded its "buy" rating on Norilsk to "neutral," noting that the stock had significantly outperformed the MSCI Russia index since May.

Russian metals have been buoyed by a lot of good news from Asia. Indexes in Hong Kong, China and Australia all hit record highs toward the end of the week. Australia's BHP Billiton has been performing extremely well, and this has spilled over into Russia.

"It all adds up this general consensus view that it's time to get back into the emerging markets -- and within the emerging markets into commodity plays," DePoy said.

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