. Gold price to continue rising in 2011

GOLD mining companies expect the current gold rush to continue as gold prices are forecast to continue rising in 2011

The positive run on gold is expected to continue because of the financial concerns about the state of the global economy, PriceWaterhouseCoopers said in a survey published today.

PWC interviewed executives at 44 companies and found that nearly 75 per cent of all the gold mining companies expect gold prices to continue rising until the fourth quarter of 2011 and about 82 per cent of those surveyed expect their forecasted gold production to increase.

Gold companies predict gold will peak between $US1400 an ounce and $US3000/oz with 40 per cent believing the price will peak around $US1500 when the survey was conducted in November 2010, PWC said.

“Given the high demand for gold, it will be interesting to see if companies that have located marginal deposits of gold will kick-start their production and move faster than they would under normal circumstances,” said Jason Burkitt, PWC's UK mining leader.

The survey found that 70 per cent of gold producers plan to use their additional cash flow to look for new projects or expand existing ones to replace or replenish reserves. The top three strategies are organic brownfield exploration, according to 78 per cent of those surveyed; organic greenfield exploration among 54 per cent of those surveyed; and mergers and acquisitions among 37 per cent of those surveyed.

Gold gained $US8.20, or 0.6 per cent on Friday to settle at $US1378.60/oz on the Comex division of the New York Mercantile Exchange. Gold is still far below the inflation adjusted high of 1980, PWC said.

Gold would have to surpass $US2435/oz to beat the inflation adjusted peak of two decades ago, PWC said, citing Bloomberg data.

Concerns over embattled currencies, particularly the US dollar and euro, are helping drive the price of gold higher. Large deficits and rising levels of debt have placed pressure on the traditionally strong global currencies and prompted more countries and other investors to consider turning to gold as a substitute to holding weakening foreign currencies.

The high gold price and positive 2011 outlook have led many gold mining companies to unwind their hedging activity as evidenced by companies such as Barrick Gold, AngloGold Ashanti and Resolute Mining.

The survey shows that 26 per cent of the companies interviewed hold derivative or forward gold sales contracts to lock in the price of gold, up from 22 per cent in 2009. But 64 per cent of companies that have these agreements are required to do so as an explicit condition to obtain project financing, PWC said.

Mergers and acquisitions activity in the gold sector has also picked up significantly as companies seek to replace lost reserves and tap into more cash flows when gold prices are still higher.