Some MORE post 911 read with GOLD and Greenspan quotes also:
prospector-news.com
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Daily Prospector News for November 08, 2001
Welcome to the New Prospector!
It's the web and unsurprisingly, the Internet is a changing place. Thus, we are changing too. Not just "change for change's sake" but because, based on reader responses and changing expectations, it is time.
So, what can you expect from the New Prospector?
We would like to present you with a concise, factual, investor-relevant and above all, interesting take on the major events affecting the world of miners, mining companies and the people who invest on them.
Hopefully it will provoke thought and ideas from you, our reading public. Therefore, what we would like from you is your opinions, suggestions and criticisms. Feel free to send anything you want to say, polite or otherwise, to KWEditor@idmail.com. We want to make this site as useful, helpful and entertaining for you as we possibly can. Let us know how we are doing.
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Gold Hedges
Gold. Is it relevant anymore? There are of course the gold bugs lined up from one end of the world to the other who insist that it is essential in today's economy but their number has dwindled.
The more precise question though is, 'Is gold relevant anymore as disaster insurance or has it become just another commodity in a world currently choking on a glut of commodities due to the downturning world economy?'
The answer is that it doesn't matter since it is relevant in either case. The Gold Institute out of Washington notes that while 2001 has been miserable for worldwide economies and stockmarkets, gold demand went up by 1%. That only includes up to June so the demand increase, in this case is not September 11th driven.
Following September 11th gold leapt upward by $25 an ounce and seemed poised to break into the $300 range for the first time in three years. It seemed a solid reaffirmation of the old truth that when the world turns to war or uncertainty, people turn to gold. After all if the world moves into some kind of prolonged chaos, despite what everyone might think, there is no certainty which countries or which currencies will come out on top.
Nobody in the west really thinks the US can lose the war on terrorism but they aren't sure that the world's foremost superpower can exactly win it either. And the damage inflicted on the US might be considerable before either a victory or stalemate is reached.
But then all the usual things that happened after September 11th turned out not to be so usual. The war's future is uncertain but the US and George W. Bush are getting approval ratings never before seen. The stock market has come back to pre-September levels, despite the unfolding bleakness of the economy in general, reflected in such things as lay-offs. Desperate attempts to smash down the interest rate is part of the glue holding foreign investments in the US in place, without which the US dollar would plummet like a cement-booted gangster being dumped into the Hudson River.
Some say that the over-valuation in the stock market makes such a plunge inevitable and, when it happens, a frantic panic will ensue as investors turn to gold because there will be no other viable alternative.
Such possibilities make gold, as a hedge, invaluable but for many investors the whole disaster scenario brings up a huge "u-h-h-h-h-h (yawn)".
The problem is that it was more than five years ago that Alan Greenspan called the market irrational and yet it more than doubled since then. Gold spinners alas, have seen no such euphoric rise in the valuation of their holdings.
But then, regardless of which sector you follow, you can lose money if you pick the wrong stocks or you pick the right ones at the wrong time.
Barrick took most people by surprise when it announced its takeover/merger of the gold veteran Homestake. Surprised because Homestake's production was costlier and many people thought that this was a bad decision for Barrick.
Barrick's Randall Oliphant has, unsurprisingly, a different spin on events. Homestake, he told the crowd at the Denver Gold Show on Oct. 3rd of this year, had lowered its production costs to the point that it was doing better than Barrick. He listed off other benefits, a 50% increase in gold reserves for a 35% stock increase, big new projects coming down the merged company's pipeline and other advantages that include probably include some degree of marketing spin.
Moreover, if you look at the growth of Barrick for the last 20 years it is phenomenal. One has to wonder if the company has suddenly taken leave of its senses and the evidence would suggest not. It is consolidating its hold on the gold industry because it is confident of the future and it is taking steps to hedge its bets no matter what the market does.
Less publicized than the takeover but at least as relevant were two other changes in Barrick's way of doing things. One is that Barrick is leasing less gold this year and selling onto the spot market. For sure, the spread in lease rates has declined, making the option less attractive than at any time in the last decade but Barrick's decision isn't just based on less attractive numbers in the short term. The lease rate is seen to be a less sure way to make money because there is an unspoken feeling that gold could jump at any time. If it did, leaseholders who are caught short would be in big, big trouble. And, if it did jump, being on the spot market would mean big profits for those companies able to take advantage of panic buying. So Barrick is still hedging its bets in both directions, by leasing some gold and selling to spot as well.
Yet another hedge from Barrick comes, by way of inspiration I think, from De Beers. The formidable diamond giant, long used to its monopoly in distribution has seen the writing on the wall and is beginning to abandon that position. Instead it is using the blood-diamond controversy plus its own name-brand recognition to move into the retailing market. Integral to that marketing move is the build-up of the, "a diamond is forever" feeling and philosophy.
Back to the gold market where purists have long fought the idea that gold should be pushed as anything other than the ultimate safe currency. Industrial uses are fine but are small fish in the consumption market, especially since gold can be handily recycled.
So gold too is forever although it is in a malleable form. For ten years the Gold Council, among others, has fought to go upscale with the marketing of gold by pushing its use in jewelry. Useless, others say, since if the gold price goes up dramatically as it did in 1980, gold consumption for something as frivolous as jewelry dies. And since the only gold piece that is a recognizable, unique piece of gold is one that has been worked somehow, it is the artist's skill that is the truly unique fixture, not the gold itself.
Barrick however, under Oliphant, apparently sees it a different way. He is pushing for a gold marketing council, similar in form to what De Beers is doing to raise the consciousness of gold in the consuming public. Make gold jewelry upscale, fashionable and into something that no one can do without. Make people want to hoard it, not in their bank account or as a bullion bar or coin but as a fashion accessory.
Can it work? It sure has potential. Business history has a foundation of companies that succeeded, not because they had an essential product or the best one, but because they sold it, that is, they marketed it, in the best manner possible.
And while fashion is something that comes and goes, it certainly can't help to have a big, concentrated marketing effort coordinated to help boost gold. If gold falls out of fashion in seven years or fifteen it could still boost demand between now and then and, by that argument, it will inevitably come back into fashion in eleven or twenty years.
And so what if gold prices go berserk and take off? If anything, that may make gold even more fashionable. After all many people have diamonds but there is undeniable status for somebody who sports a 12-carat rock in their cleavage at well-to-do parties. Oliphant believes that gold would do very well by following that well-worn path.
Gold jewelry may not put gold over $300 by itself but in a world where the gold price has received no attention from many investors for nearly half a decade, it sure can't hurt to put one arrow in the quiver of market attention.
More importantly, the hedging, planning and marketing means that gold is not dead and the best companies are going to make it through. Indeed, despite terrible times a few companies are exceptionally profitable. Throwing supposition, future plans and hot air aside, they deserve to be looked at carefully by investors. After all the general stock market may have had wild rides this past year, sloping more down than up, but it is the gold and precious metals indexes that are up for the year.
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Chucka saw that K-t Board quote in full, just thinking outloude... |
