Low-hanging golden stocks ripe for picking

If nothing else cheers you up this week, take a long, loving look at the price of gold. In November 2001 it was $272.10/oz and this month it hit $1900.30/oz.

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Meltdown yes, but Armageddon no

Gold has come off since then, to around $1720/oz on Friday, but nobody's too panicked that it's due for collapse. Indeed, the most persuasive reason given for the drop in the bullion price was that cash-strapped European banks and national treasuries had no option but to flog off some of their holdings to keep their houses afloat.

You may ask why underwater eurozone economies don't go the whole hog: empty their vaults of gold and use the proceeds to soak up the national debt once and for all.

The live blogcast on telegraph.co.uk last week, tracking one or another round of euro-crisis talks, included a daring proposal from Douglas Borthwick, managing director of New York-based foreign exchange dealer Faros Trading.

Borthwick reckons Italy holds 2452 tons of gold - the world's third-largest store of reserves after the US and Germany. Sell the lot of it to the most willing and solvent buyer (China) for something like $139-billion, and ... voila! No more debt.

It is a lovely idea, but even the slightest suggestion of it being put into practice would petrify the life out of the mandarins of global finance. That is because it would leave Italy without any "back stop" store of value beyond a sad stack of promissory notes commonly known as euro currency.

Give predatory markets one sniff of that kind of vulnerability and Italy, and probably the whole eurozone, would be toast.

"Fiat" money, like a euro note, is worth nothing but the promise of nameless bureaucrats that it is worth something. Remove Italy's sole tangible reserves (2452 tons of gold at $1700/oz) and the hyenas will swarm all over it: if Rome struggles to find buyers for new bonds at 7% right now, imagine how literally worthless its debt would be if it had nothing to back it up.

Beyond the short-term hammering gold would take as that amount of supply hit the market, the euro - and quite likely the dollar - would go down the toilet and bullion would instantly be recognised as the world's only undisputed item of value.

Imagine the demand. The gold price would go berserk.

So we'll have to leave that notion as a pipe-dream, and concentrate on hard reality. And, whether the sceptics like it or not, there is plenty of low-hanging fruit on the gold tree. South African miners, for one.

Investors in Anglogold Ashanti, Gold Fields and Harmony have been left in the dust in the past five years, while those who bought Absa's Newgold debenture made hay. That exchange-traded fund is linked directly to the rand-gold price - and we all know what's happened there.

Meanwhile, our trusty mining stocks have been hobbled by perceptions that costs and labour problems would forever condemn them to low earnings.

Not so much, any more.

My favourite proxy on the fortunes of local gold miners is Harmony - and I like to keep tabs on how it's progressing against Standard Bank. In years gone by both counters have hovered around the R100 mark.

Lately, and belatedly, Harmony has broken through to about R107, while Stranded languishes at R94-odd. No big deal, you might scoff. Well, as my grandpa used to say when we were cheeky: "Come here, I'll tell you something."