Pot of Gold Continues to Beckon
Ray Turchansky
CanWest News Service
National Post / Financial Post, Toronto
Saturday, December 24, 2005
canada.com
Six weeks ago Eric Sprott, a leading hedge fund manager and a known
contrarian, had a mischievous smile on his face as he talked about
gold, which had risen nearly US$50 an ounce in six months, to
US$460. "If we have a shortage in gold, the price will go crazy,"
said the chief executive of Toronto-based Sprott Asset
Management. "I think gold's day is coming. Another big run is
coming."
On Dec. 12 gold hit a 25-year high of US$540.90 an ounce, an 18
percent climb since Mr. Sprott spoke. Then the price descended to
US$505.70, before it stabilized on Dec. 15. Gold has been hovering
around the $500 mark for the last few weeks.
James Turk, the founder of the GoldMoney.com, based in the British
Channel Island of Jersey, said on Canadian television this week that
gold will hit US$600 in the first quarter of 2006, and US$900 before
the year is out. Bill Murphy, who heads the Gold Anti-Trust Action
Committee, predicts gold will reach US$1,000 an ounce by the end of
2006.
Mr. Murphy's group contends the central banks and politicians are
part of a "gold cartel" that has artificially suppressed the price
of gold by leaking some of the gold held by central banks on to the
market. Now, they are running out of gold, he says.
Mr. Turk says the price increase is due to U.S. inflation,
unsustainable record trade deficits, and growing federal budget
deficits that will have to be financed with newly created dollars,
cheapening that currency.
"Gold is money, and people are becoming more cognizant of the
importance of the safety and security afforded by gold as the only
money that is no one's liability," Mr. Turk wrote in a newsletter
this week. Gold's high of US$875 an ounce in 1981, he said, would be
the equivalent of US$2,200 today.
As gold companies try to swallow each other up -- Barrick Gold Corp.
and Placer Dome Inc. on Thursday announced their merger -- Mr.
Sprott said it would take a commodity price of US$500 an ounce to
make most gold companies profitable. "Nobody's earnings in the gold
industry justify the stock prices today, and they never will because
most of us who invest in gold are looking at it prospectively. To
justify the prices, you've got to go to [US]$550 or [US]$600."
Many people invest in shares of the bullion on the New York Stock
Exchange -- 400-ounce London Good Delivery Bars held in the vaults
of HSBC Bank USA. But while share prices of gold mining firms depend
on earnings, gold bullion trades like a currency. And the U.S.
dollar has fallen 27.5% against the loonie in three years.
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