Four-digit gold price in 5-8 years says Lassonde
By Tim Wood
30 Nov 2004 at 08:52 AM EST
SAN FRANCISCO (ResourceInvestor.com) -- Newmont Mining President, Pierre Lassonde, wowed a capacity crowd of investors with a four-digit gold price forecast on Monday. Lassonde was a keynote speaker during the final day of the San Francisco Gold & Precious Metals Conference.
“At the end of the day all currencies will have to depreciate against the only currency that is not managed, and that is gold. ...When I look at the gold price and commodity prices over the next 5-10 years I do believe you’re going to see gold with three zeros at the end. You’re going to have to be patient. You’re not going to see it this year or next year. I think it’s going to 5-8 years down the road.”
That forecast came after Lassonde had methodically presented his evidence for a resurgence of hard assets over paper assets. He framed the case using the 1970s as an appropriate overlay, but noting several key differences that suggest the gold price is still quite tightly coiled even though it has almost doubled in value since its nadir in May 2001.
One of the important differences is the nature of inflation. It was more systemic during the 1970s whereas now China’s global deflationary power is mitigating some cost increases. Lassonde warned investors to take special note of China’s unprecedented market power.
“China in particular and Asia in general are exporting wage deflation. If there is one thing you have to remember it is that China is the world price setter for commodities that it buys, and for finished goods that it exports. That’s a first in economic history where a country is so dominant in what it either buys or sells.
Lassonde quipped that the West’s experience of simultaneous inflation and deflation was like having your head in a fire and your feet in a bucket of ice. “You feel okay in the middle!”
Whilst China grows stronger and coaxes the region to grow with it, America and Europe are weakened through poor fundamentals such as chronic budget and trade deficits, uncompetitive cost structures, increasingly third world-like debts, insipid savings rates and gargantuan unfunded liabilities.
As those unfunded liabilities come due with the onset of baby boomer entitlement cash outs, Lassonde predicts that central banks – badgered by embattled politicians – will flee to their currency of last resort – the money printing presses. Indeed, there is already evidence of the anticipated aggression with protracted negative real interest rates in the United States.
“The Fed has painted itself into a corner,” chided Lassonde.
With gold having reasserted its monetary status as evidenced by its correlation to the dollar and its alternatives, Lassonde says a bull market in hard assets is clearly underway. He suspects it might eventually mimic the duration of the previous up cycle that lasted for 14-years, culminating in 1980 when the gold price peaked at $850 per ounce.
That was the cue for Lassonde to roll out one of his favourite charts that divides the Dow Jones Industrial Average by the gold price. Twice in the past century that ratio has reverted to 1:1.
“I ask you, where is the Dow going to bottom? I will tell where the gold price is going to go. … I don’t know where it’s going to bottom. No-one knows the future, or how much inflation and money printing we’re going to have in the United States.”
He reiterated that gold must appreciate against all currencies, not just the dollar, before gold miners and the investors who back them are truly satisfied.
“Over the next 12 months I think you’re going to see the gold price up to maybe $500. And then it could mark time until we see the next big move. . . against the Asian currencies… a 50% move. … I’m very, very positive on the gold price.”
Please note that a full text transcript of Pierre Lassonde's presentation will be available on Resource Investor this Wednesday.
< Back |
