Florida ConferenceGold bull has hardly started - Lassonde
By: Tim Wood
Posted: 2004/03/02 Tue 12:20 EST | © Mineweb 1997-2004
NEW YORK (Mineweb.com) -- Newmont president, Pierre Lassonde, is certain that the gold bull market remains in its infancy, and points investors to the 1970s to understand how events might unfold in gold’s favour in an era of a “manic depressive dollar”.
“We haven’t even started to correct the US financial imbalance of the last three years. Don’t tell me that the gold bull market is over. It has hardly even started,” Lassonde told the audience at the 2004 BMO Nesbitt Burns Global Resources Conference in Tampa, Florida.
He predicted that gold will outperform other assets for some time to come. “As long as they don’t cure the financial imbalances, the dollar will continue to go down and be very volatile. I don’t know how long it will take, but it will take quite a few years [to work through] and that is the gold story in a nutshell.”
Lassonde illustrated his convictions with a series of familiar graphs to repeatedly underscore the weakness of the US dollar – the US current account has slid back to the traditionally critical 5% of GDP; Asian holdings of long-term American government debt has soared recently; gross US debt remains at an all-time high; the US government continues to spend itself into oblivion having accumulated a deficit of nearly $7 trillion; the ratio of the Dow Jones Industrial Average relative to gold is reverting back to mean; and technical innovations in mining have dried up suggesting declining output in years to come.
“The 1970s are the decade you need to look to the most to understand what might happen over the next few years,” Lassonde said.
“The last real gold bull market was in the 1970s. It went on for 9 years from 1971 to 1980. What we’ve had in the past 20 years are bear market rallies. So when you read . . . that the average gold bull market is 40 months and we’re 36 months into it; and that’s bad. Well, you know what, they haven’t seen anything until you go back to the 1970s.”
Citing a strong correlation with the dollar and euro, Lassonde says: “Over the past two and half years gold has been a currency, not a commodity. That’s because the dollar, as currency of last reserve, is not acting that way thanks to the US financial imbalances that are enormous, unresolved and growing.”
America is currently funded through foreign largesse with Asian central banks especially active in soaking up dollars to avoid US consumers from losing purchasing power that would dent their appetite for imports.
“There is not one central bank that needs to accumulate as many dollars as the [Asians] have just to keep the cycle going. . . It’s the biggest vendor financing take-back you’ve ever seen in the history of the world,” quipped Lassonde.
He maintains the US Federal Reserve has snookered itself with excessive debt that, if challenged with rising near-term interest rates, would result in the collapse of the American housing and auto markets. “It will send the US economy into a deflationary spiral. That’s the one thing the Fed wants to avoid because deflation is uncontrolled financial reaction. You can’t control it,” Lassonde says.
He predicts a manic depressive dollar where no news is consistently good or bad, resulting in increasing volatility. That should favour gold, reinforced by the relative scarcity of real bull markets for the metal.
Lassonde also noted that gold production is inelastic, with a lag of about 7-12 years between output and the gold price. “Back in the 1980s we had new technology that came in – heap leaching, roasting, auto-claving – none of that is on the horizon today.”
Lassonde adds: “[In the 1990s] we also had huge patches of ground being opened up in Africa, South America and behind the iron curtain. We’re in a different stage in production than we were back in the 1980s.” Consequently, he discounts reports of increasing production, at least in terms of time and rates of increase.