from the toronto star today:
Oct. 26, 2003. 08:42 AM
Bullish on bullion
Things are definitely looking up for the once-troubled precious metals sector
LISA WRIGHT
BUSINESS REPORTER
His office is located within a 30-mile radius of 82 golf courses, and when he squints to see out the window through all that sunshine, the Rocky Mountains stare back at him.
But Pierre Lassonde also sees something equally as lovely, plain as day, and not too far off in the distance: a $450 (U.S.) gold price.
No, the president of Newmont Mining Corp. has not inhaled too much of that fresh mountain air since moving to Denver last year to form the world's biggest gold miner after the merger between his Toronto-based Franco-Nevada Mining Corp. Ltd. and Australia's Normandy Mining Ltd.
He just sees the silver lining forming on that cloud called gold, which is floating ever closer to the heavenly $400 mark after far too long in purgatory, much to the delight of long-suffering investors and die-hard gold bugs like him.
"After a 20-year bear market, it is very exciting to finally see a bull market for gold, and we believe it will continue for the next three to five years," Lassonde says.
"It might sound trite but times are good. I'm a really happy camper," he says.
Bullion is getting a long overdue boost from the bulls thanks in large part to the sliding U.S. dollar and the soggy world economy.
It wasn't long ago that investors were whining that gold couldn't blast past the $300 mark. It was actually stuck under $300 when the Newmont merger was completed in February, 2002.
How times have changed. The Denver gold show, one of the biggest annual conventions in the industry and located in the city Lassonde now calls home, had its highest attendance ever, which shouldn't come as a surprise what with all the investment capital floating around, even for the formerly struggling juniors.
Gold closed Friday at a 2003 high of $388.90 (U.S.), up $4.20.
"It's the world's way of saying: we'd like more gold," explains veteran gold analyst Martin Murenbeeld.
Like all gold bugs, the Victoria, B.C.-based market watcher has been a perpetual optimist about the commodity despite its lacklustre performance over the last two decades. But he's almost ashamed to admit that he was actually losing faith just before mid-2001.
Then a funny thing happened when, in June of that year, he sat down to write his regular market commentary. There was an unusually upbeat title on it — "Gold: A Brighter Outlook" — compared to its predecessors, and in it he listed in crystal-ball style the underlying reasons for why bullion was headed for better times.
"Before that, I'll be honest, it was hard to be positive about it," he says. "Now gold is in an up-trend."
He sites a host of factors, with the key being the weakness in the U.S. currency and world stock markets, historically the reason that gold is considered a safe haven for investors.
"The U.S. dollar is seriously overvalued," his report says, adding its decline is inevitable and it would drive up the price of gold as it headed south.
Also, the slowing of the world economy has led to stimulative monetary policies such as lower interest rates and easier loan conditions, more growth in the money supply and governments running budget deficits, which are all positive conditions for gold.
He points out too that the Chinese gold market is being deregulated, which is putting fewer restrictions on buying gold, and that there are also new gold products being introduced to the public for investment purposes, such as exchange-traded funds, so that people can buy bullion on the stock market in paper form.
Also encouraging is news that the central banks are expected to announce a continuation of their agreement to limit gold sales, which in turn means that they're not going to just dump gold into the market and weaken demand.
"If things continue along this path, gold is going higher," Murenbeeld says. "We don't see an end to this anytime soon."
He's not the only one lining up to say I told you so about how things would turn out for the precious metal.
In Franco-Nevada's annual report in 1999, and in speeches since then, Lassonde and his former co-chief executive Seymour Schulich have also talked about how the U.S. dollar was extremely over-valued — and gold was under-valued in relation to it — and that the currency would burst much like the so-called tech bubble.
"We've been on record with this for four years. We even made the $350 call in February of last year. So far, we've been right," Lassonde boasts.
While he thinks gold will hit $450 sometime next year, he's not predicting that it will be sustained at that level.
Other analysts are focusing more on the $400 milestone for now, a level it hasn't reached since 1997.
"It's a psychological barrier and it's a nice big, round number, and the market likes that," says analyst Victor Flores of HSBC Securities in New York.
Before Friday's jump, it had been regularly closing between $370 and $385 since August.
During that period it hit a peak of $387.50 on Sept. 24.
But Flores agrees it likely won't hit the magic number until next year because seasonal demand for gold has already peaked and tends to decrease toward the end of the year.
"It's not doing too badly. It's been in an upswing since mid-2001. The market expects the gold rally will continue because the stocks, especially the juniors, have run very hard," Flores says.
He says it couldn't come at a better time for the battered bullion business, which took it on the chin for years thanks to the Bre-X gold salting scandal in the spring of 1997 that shook investor confidence and gave way to merger mania among the seniors and mid-sized gold miners.
Investors were also distracted by the allure of technology stocks and the red hot U.S. greenback.
"This industry, quite frankly, is not viable long-term unless the gold price is $350 or higher," Flores says, noting big development projects are very gold price sensitive and they just weren't economical for the seniors at a $300 gold price.
Now that it's safely over that hump, everyone is in a better position to raise money and conduct exploration, and the incentive to merge or hedge has been significantly reduced.
"Gold and the U.S. dollar has been the most dominant relationship out there (in the market)," says mining analyst Barry Allan of Research Capital Corp.
"There was a long steady climb in the U.S. dollar, but we're on the other side of that now," he says.
"The overall tone for bullion is positive," Allan says, adding that while $400 is mentally a big barrier for the market, he says it will still take a couple of years to sustain it.
Since a spike in the U.S. dollar is highly unlikely, he sees slow and steady improvement for the commodity.
As eternal optimist Murenbeeld puts it: "People like to set up these magic numbers, but gold just blasts through them." |
