NYTimes
December 12, 2001
A Heresy for Gold Bugs: Price Is No Longer Tied to Disasters
By JONATHAN FUERBRINGER
Robert M. Godsell, the chairman and chief executive of AngloGold (news/quote), has been making waves in the gold business recently.
Despite the publicity, his disturbance has not caused by his company's presence in a bidding war to buy Australia's largest gold producer, Normandy Mining (news/quote). With a new and higher offer from the Newmont Mining Corporation (news/quote), AngloGold may now bow out. In an interview, Mr. Godsell said AngloGold would respond to the Newmont offer but "will not overpay for assets."
No, Mr. Godsell made waves by crossing gold bugs. In an interview at the end of October, he dared to say the price of gold was no longer linked from disasters. That is, it was not the safe investment harbor in disasters — political, military or natural — that hard-core gold bugs have contended.
His view on disasters and gold is worth taking note because the price of gold has fallen back to close to where it was on Sept. 10, the day before the terrorist attacks on the World Trade Center and the Pentagon. The spot futures contract for gold on the New York Mercantile Exchange closed at $272.90 an ounce on Tuesday, just 60 cents above the Sept. 10 close. In trading today, the price popped over $274 an ounce.
Even though Mr. Godsell has modified his comments some, he is still likely to annoy many members of the hard-core gold community. He basically believes that the gold industry should pick itself up on its own, rather than waiting for some outside force — like a disaster — to revive the price of gold.
"Gold producers have been waiting for two decades for some external event to rescue their industry," he said. "What I am talking about is taking charge of our own destiny."
Mr. Godsell will not walk the line on other core beliefs, including the contention that hedging by gold producers is a major source of the weakness in gold prices. While AngloGold is reducing its hedging this year, it has not stopped. (Hedging can push prices lower because producers who want to lock in a price for the future must borrow gold and sell it now, putting downward pressure on gold prices.)
Mr. Godsell has three simple guides for the industry:
First, produce less gold, especially gold that costs a lot an ounce to mine.
Second, make it much easier for Western investors to buy gold. Gold coins, like the American Eagle, come at to high a premium over the actual gold price, he said. "It is very difficult," he said, "for people to buy physical gold at fair value." He said there needs to be a distribution system that will offer physical gold in small amounts at premiums of around 3 percent over the spot gold price.
Third, there needs to be more gold jewelry sold in the West that is priced with a better relation to the actual gold content.
What Mr. Godsell said that made the waves came in an interview with Moneyweb.com.
"What certainly has happened, and I don't regret this at all, is that the gold price has disaster delinked," he said in the interview. "I mean, one could hardly script a more dramatic disaster than 11 September. The price spiked by $20 and stayed there for a week or 10 days, and then moved back to a lower trading range.
"I've never been a fan of the disaster scenario by the way," he continued, "because it always seemed to me that the proposition was that the good news is that the gold price is at $600, and the bad news is that somebody has just nuked Islamabad. I'm not sure that's the kind of world I want to live in."
Mr. Godsell now says that he regrets the way he made the comments, because he did not make clear that he still believes that gold is a store of value and is money, important tenets to gold bugs. But gold, he argues, is no longer linked from disasters. So, now he says: "It has disaster delinked but is still has a store of value." |
