The recent plunge in gold prices has started alarm bells ringing among Australian investors and gold miners.
Although most analysts believe some gold stocks are an essential part of any long-term Australian share portfolio, they said the time has come to move funds out of gold.The price of physical gold has fallen 25 percent since the beginning of this year. Market capitalization of the top 25 Australian gold producers has fallen 37 percent. The value of units in the three main gold funds also has plummeted.
Industry analysts said that $1,000 Australian dollars invested in gold stocks 12 months ago would now be worth between $294 and $392 Australian dollars.
The stronger Australian dollar of recent months has made life even more difficult for local miners.
The proposed introduction of a gold tax in 1991 was expected to further dampen the enthusiasm of miners and investors in the next few years, analysts said.
Some investors are asking if gold has failed in its traditional role as an inflationary hedge as millions of dollars has been dumped through the market in the past weeks as a jolting reaction to the recent price tumbles.
"If this trend continues and the gold price falls to $375 an ounce next year, as some analysts suggest, the Australian mining industry could see overall profits slashed by nearly $450 million," said Rob Fraser, an economist with the Australian Mining Industry Council.
"A $375 an ounce gold price, and its concomitant drop in production, would reduce the Australian mining industry revenue to $1.5 billion," he said. "The difference could come straight out of profits."
David Rees, a gold analyst at the North brokerage, believes gold is still a safe haven in troubled times.
"When the gold price didn't rise dramatically after the (October) crash, it was telling you something - that the crash wasn't such a serious problem as everyone thought," Rees said. "The gold price knew better.
"Gold is performing to specification," he said.