DOING SOME DIGGING – Gold at What Price?

Around the office we have been rubbing our hands in glee, as we watched the price of gold run up to the US$458/oz m...


Around the office we have been rubbing our hands in glee, as we watched the price of gold run up to the US$458/oz mark earlier this month. Not that we are terribly greedy, but we do applaud a price that makes gold mining profitable. A little dip in the price is no problem because we know it will work its way back up again.

So when PricewaterhouseCoopers' (PwC) 2004 GLOBAL GOLD PRICE SURVEY became available we read it with interest. The survey included responses from 43 leading gold miners in Canada, the United States, Great Britain, Australia and South Africa. It looked at the gold price those companies have used to assess carrying values, what influences their choices, and the disclosure they plan for their 2004 annual reports. According to PwC, gold mining companies continue to apply conservative prices to their reserves and carrying values, despite high prices at a level not seen since 1988.

Since the end of 2003, the price of gold in US dollars has risen 10%. That's good, we thought. The companies surveyed, however, reported using an average price of US$366/oz for reserves and US$379/oz for carrying values, both up 9% over 2003. Okay, so if the price used for financial determinations is far below market price and rising slightly less than the gold price, we can call the mining companies conservative.

Then we opened the attachment to the press release, which notes, "Pricing gold in other currencies reveals a different story." Using the pound sterling, the price at ₤232 was virtually unchanged over the year. The rise in Canadian dollars is minimal from Cdn$534 to Cdn$537. In Australian dollars the price went from A$550 to A$575. Using the South African rand, the gold price fell during 2004.

The mind boggles at the increasing complexity of determining the value of gold. Not only do mining companies have to be expert in finding, digging and treating gold ore, they have to consider precisely what the world economic situation is. The weakening U.S. economy is partly to blame, but Canadian gold miners can do little to influence it. So despite high gold prices, producers are probably correct to be cautious.

If you wish to read the PwC survey in its entirety or view past surveys, go to


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