Schroders: We're overweight gold

Schroders: We're overweight gold. We are now overweight the gold sector, although the significance of this is somewhat marginal for the strategy given the sector is now only around 3% of the index versus >10% at the peak. The Australia dollar retracement to US$0.80 or thereabouts is nearing our long held US$0.75 assumption. As such many of the Australian based gold miners that have completed significant capex campaigns will generate sound levels of cash if the gold price holds around current spot price which is not too dissimilar to our mid-cycle gold price assumption of US$1250/oz. A falling oil price is positive for the economics of high volume open pit miners (e.g. around 35% of Regis Resources cost base is diesel fuel). Balance sheet strength and low cost operations are particularly important when buying gold miners due to the speculative forces ultimately determine the gold price, given its limited use in industrial purposes and the existence of significant above ground supply. (Source: Matthew Booker, Senior Portfolio Manager, Australian Smaller Companies)