True value of gold 'is $2,000 an ounce' ---
Peter Koven, Canwest News Service, October 10, 2008
Peter Munk can think of only one reason gold prices are not higher: Gold is the one thing people can sell right now to generate liquidity without taking an enormous loss.
The founder and chief executive of Barrick Gold Corp., the world's biggest gold miner, said in an interview that the true value of gold amid today's financial Armageddon is $2,000 US an ounce. While he asserts he is no gold bug, he figures that prices are being held back by sellers that are desperate for liquidity and are unloading their bullion.
Stocks can be unloaded only at fire-sale prices, but investors can generate profits selling gold because there is demand in the market for it, he said.
"If you're pushed for cash in today's conditions, you're not going to sell your stock or your hedge fund that lost 65 per cent of its value, said Munk, 80. "You're going to sell the one item that is instantly salable, instantly generates cash, on which you don't take a loss. So by all means, gold is the most obvious way to generate liquidity."
Gold is traditionally viewed as a store of value and a safe haven during turbulent times, and it has indeed outperformed nearly every other asset class recently. Gold for December delivery is trading around $900 US.
But while that price would be cause for celebration in the industry five years ago, it is not so welcome today when some companies are producing the commodity at a cost of more than $700 US an ounce.
Gold bugs maintain that bullion should be far above $1,000 US because it is the only reliable store of value as the U. S. dollar and other currencies are pressured by inflation and money-printing.
They often complain of central bank selling to hold prices down, an argument that Munk dismisses.
"Why would a central bank sell gold for cash when gold may in fact be some sorely needed backstop if the amount of cash they print isn't adequate? I don't believe that would be a clever move," he said.
Catherine Gignac, an analyst at Wellington West Capital Markets, agreed with Munk that gold is unique right now in that you can actually take profits in it.
She expects prices to go up as gold companies cut back production in these markets and look to preserve capital.
"Gold is extremely cheap and it's not reflecting true value," she said.
Munk is not in the business of forecasting gold prices, and he will not hazard a guess as to where they go next. But he is very concerned about the spread of the financial crisis to Europe and the rest of the world, which he said is not prepared to act as quickly as America did to deal with it.
"The pain will reach a level where the real economy will start being hurt to a degree that will not be tolerable," he said.
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