- Gold is widely anticipated to benefit from more QE by central banks
- Production in South-Africa impacted by miner strikes
- Prospects for mature producers in South-Africa bleak
- RBS warns not every gold miner is a good buy at present levels

By Greg Peel

It's difficult to find a major broker who doesn't currently have a gold price target in excess of US$2000/oz by next year or even earlier. The old adage is that if everyone has the same view on the market, the market will go the other way. However for bullish analysts, the upside story is just too compelling.

It's all about the inflationary effects of monetary policy stimulus of course, and in the case of USD gold, QE3 is the big driver. The USD gold price has stalled this week as concerns over Spain push the USD a little higher, but we did see a price jump of around US$100/oz in the lead up to, and confirmation of, QE3. At around the US$1750/oz mark we are still some way from the high posted earlier this year above US$1900/oz, and thus even further still from numbers over US$2000/oz. But in the meantime it would seem Australian-listed gold stocks have suddenly woken from their slumber.

Share prices of global gold producers have been lagging strength in the gold price for some time now, which historically is not unusual. If history is any guide, those share prices eventually catch up and even exceed their implied valued based on the gold price. And we must not forget that gold miners have their own problems with regard to costs of production, delays and so forth, which distorts any leverage to the gold price itself. Just look at the performance of Newcrest Mining ((NCM)) these past years.

Complicating the gold story at present is growing mine worker strike action in South Africa. South Africa is the fifth largest gold producer in the world but also the primary producer of platinum and paladium, and it is in the PGMs that South African strikes have first had an impact. Workers at Lonmin's platinum mines recently stage a walk-out which lasted six weeks and sparked serious violence. A total of 46 miners were killed, including 34 shot by police. In the end, Lonmin agreed to wage gains of up to 22%, or four times the South African inflation rate.

Not surprisingly, this “win” did not go unnoticed by workers in South Africa's other mines and mining companies. Citi has since upgraded its platinum and palladium price forecasts by up to 8% and 16% respectively out to 2016, warning of supply falling into balance with demand in 2012-14 and into deficit thereafter.

PGM prices will not soar to the heavens nevertheless as there will be a supply-side response as prices rise, Citi suggests. Higher prices will bring mothballed production back on line, see stockpiles drawn down, and encourage more recycling. However with costs rising all the time, South African gold producers won't have the same luxury.

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