Hi Maurice, gold as money, with much improved liquidity etc, is on way to a bank near you.
online.wsj.com
April 29th, 2002
Adding Glitter
Gold's backers want to polish up its image
By CHERYL STRAUSS EINHORN
It isn't just the war against terrorism, or the growing violence in the Middle East. It isn't just increased Japanese demand or the Enron scandal's effect on the equity markets. Rather, gold's 10% rally this year, to a recent two-year high of $309.48 an ounce, stems from all of these factors and more. And that's why, if gold producers maintain their course, the rally is likely to continue.
Until the past few months, the producers had been their own worst enemies. Not only did they make big bearish bets on prices, in part by selling some of their gold production forward into the futures markets, but they also whined a lot. They whined about central-bank sales. They whined about all the hedging in the industry. They whined about hedge funds.
Now, however, "we are done whining," says Randall Oliphant, Barrick Gold's chief executive, who has turned bullish on the metal. "I think we will keep moving higher," he says.
First, low interest rates have made hedging less profitable, and that has led producers to unwind some of their bearish bets. Second, the producers finally are making peace with the central banks, which "we know will keep being sellers," says Oliphant.
Third, the gold producers, manufacturers and retailers are organizing. For the first time "all different parts of the industry are coming together," says Mike Barlerin, the managing director for the Americas region for the World Gold Council. The industry hired consulting firms Bain & Co. and McKinsey & Co. to make recommendations about ways in which the industry might boost sales.
The result is two programs. One is a $200 million annual global marketing initiative, in line with what the diamond group DeBeers spends to promote its gems. The gold plan will be rolled out during the next three years, beginning in the second half of this year.
Its objective is to boost sales of gold jewelry, which the industry hopes will generate about 400 metric tons of new demand to replace the approximately equal amount sold each year by central banks. McKinsey estimates the program could create enough demand to lift spot prices by about $35 an ounce and create about $10 billion in value for producers spread equally across every ounce of production.
The money is going toward convincing traditional jewelry retailers such as Tiffany and Zale to sell more gold jewelry in their stores, to train salespeople about gold, and to hold special events such as trunk shows with specific designers.
Another aim is to match costs with retailers willing to run advertisements that not only will promote the product, but also tell people where to buy it. "We need to make it easy for people to do," says Oliphant.
The second part of the producers' plan is an initiative to make investments in gold easier. Robert Weinberg, in charge of institutional investment at the World Gold Council, has been looking at possibly issuing a gold-backed bond.
The industry group also has held discussions with various stock exchanges, including the New York Stock Exchange, about listing gold trust receipts that could be bought and sold like a stock. That might be a more attractive investment than gold coins, which are somewhat illiquid and need to be stored by their owner.
Each gold trust receipt would be backed by part of an ounce of physical gold, and thus wouldn't be leveraged with depositors' assets, the way banks are. "It would offer the security that if an investor owned say, one ounce of gold, he would actually own one ounce," says Oliphant.
The trust would create physical demand for the metal, because each time someone bought a share of the trust, gold would have to be removed from the market to be held in a bank vault for that investor. Result: an inexpensive, liquid gold investment that would create some physical demand for metal, without worrying the investor about where to stash the stuff.
If producers, through the marketing initiatives, can sell gold as both a safe-harbor investment, "and as an expression of ourselves," as Oliphant puts it, they may succeed in creating enough incremental demand to make gold seem more precious. That, in turn, may make it a better investment and may even convince some central banks to continue to own the metal. |
