GoldPlay

As the U.S. dollar continues to weaken and inflationary pressures heightening, many investors have now turned to gold for safety. The World Gold Council reported that demand around the world for gold rose in Q2, up 19% YOY. Demand was up 91% in India, 32% in China, and 20% in Middle East. Moreover, governments overseas have intended to gradually reduce their exposure to U.S.-dollar based assets. Last month's 50-bps Fed-funds rate cut also contributed to further weakness in the currency.

Gold prices have now risen more than 19% YTD to a record-high of $758 per troy ounce today, not far away from the psychological barrier of $800. The recent takeover of Meridian Gold by Yamana Gold also fueled the optimism of industry participants that further M&A activities could occur amid high gold prices. Speculators seeking to buy potential acquisition candidates should pay attention to this following criteria:

a. Diversity of operations (location of operating mines, which are often at geopolitically unstable countries, and also type of commodities)
b. Growth profile (is the amount of production (in million ounces for gold or metric tons for copper) in an uptrend?)
c. Cost profile (how well does the company control costs? Look at the trend of operating costs per ounce)
d. Hedging books (companies with little or no hedging books will be more leveraged to the price of gold)