You Ask Complicated QuestionWhy was an ounce of gold worth around $800US in 1980 and it's only about $900US now?
Compared to peers, Canadian market has a golden lining-lined
By DAVID PARKINSON
Thursday, February 19, 2009 – Print Edition, Page B12
Within the disheartening backtracking of global stock markets over the past week, there has been some solace for the Canadian market: It could have been worse. Not so much a silver lining as a gold one.
Despite another setback of nearly 200 points yesterday - raising the losses this week to nearly 500 points - the S&P/TSX composite index is still up 6 per cent from its Nov. 20 low, clinging to a significant piece of the bear-market rally that global equities enjoyed through December and January. In doing so, it has outperformed virtually every major industrialized-world market.
Over the same period, the Dow Jones industrial average has tumbled back to sit almost precisely at its November bottom. Germany's DAX is down 0.4 per cent from the November lows, Japan's Nikkei is down 2.2 per cent and Australia's S&P/ASX 200 is down 1.8 per cent.
The key difference? Gold stocks. Canada is loaded with producers of about the only thing headed upward in this bear market.
About 15 per cent of the S&P/TSX composite index is made up of gold and precious metals stocks, giving it more gold content, by far, than any other major stock index in the world. The S&P 500 has a single gold mining stock, representing a mere 0.3 per cent of the index; the Dow Jones industrial average has no representation from gold at all.
That has provided Canada with a fortuitous cushion during the global equity backslide, as deepening economic problems and a waning faith in government rescue efforts have sent investors fleeing from stocks and have pounded most commodities - but not gold and other precious metals, which are historically viewed as safe havens in uncertain times. Bullion closed yesterday up $10.70 (U.S.) at $978.20 an ounce on the New York Mercantile Exchange, its highest close in seven months.
Since the November lows, the 42-stock S&P/TSX materials subindex - which is about 70 per cent gold and precious metals companies - is up 68 per cent, and four-fifths of those gains have come from just a dozen big gold stocks. The S&P/TSX gold group has soared an astounding 83 per cent since the market's Nov. 20 low; the rest of the market is down about 5 per cent.
Even as the Canadian market spent yesterday playing some catch-up with the recent declines of some of its global peers, gold stocks continued to ease the pain. The materials sector was the only market segment to rise on the day, with a handful of gold names driving much of the gains.
While all this implies that the TSX really hasn't been as impressive as it seems, you can't dismiss the fact that the Canadian market is a gold haven, and that has the potential to continue to draw defensive-minded investors even as other market segments wane. A key question, then, is whether gold can continue its strength, and continue to prop up an otherwise weakening Canadian market.
It's a tough question to answer. Gold is not only pushing against its $1,000-an-ounce peak of almost a year ago, but in some senses, it is already defying gravity.
Bart Melek, global commodity strategist at BMO Nesbitt Burns, noted that gold typically trades in the opposite direction of the U.S. dollar, and in the same direction as inflation expectations. But in its latest rally, it has been rising even as the U.S. dollar climbs (due to investors securing greenbacks to buy into another safe haven, U.S. government bonds) and as global inflation pressures fall.
"Gold is running ahead of its key drivers," he said. Based on those traditional fundamental factors, he said, "gold may be getting a little overdone."
However, it's not fundamentals driving gold, but fear. As long as major uncertainties hang over financial markets - and, lord knows, there's little sign those uncertainties are going anywhere soon - then gold and gold stocks will find buyers looking to play defence and shelter from the storm.
"You could easily see it spike substantially above $1,000 on safe-haven buying," Mr. Melek acknowledged.
And in the longer run, he said, the response by the U.S. government to the current crisis could play into gold's hands. The heavy debt loads the government will absorb could eventually fuel inflationary pressures and drive down the U.S. currency.
That's all good for gold and, by extension, for the Canadian stock market. Or, at least, a fortunately big chunk of it.
For gold, an unconventional surge
By ALLAN ROBINSON
Wednesday, February 18, 2009 – Print Edition, Page B14
The price of gold has soared as investors seek a refuge from market turmoil, but one analyst says anyone betting on a U.S. recovery would do well to take some profits in the precious metal.
"We think the sun will shine again and we think the tremendous and unprecedented stimulus that is coming from all over the place will stabilize the U.S. economy," said Vincent Delisle, a strategist with Scotia Capital Inc.
Gold rose 2.7 per cent yesterday, reaching a seven-month high before ending the day up $25.30 (U.S.) an ounce to $967.50. It peaked yesterday at $974.20. As recently as mid-January, gold traded at $806 an ounce.
Gold is breaking all of the rules that work in normal times. Typically, the metal weakens when the U.S. dollar is strong, but yesterday both rose sharply. It also tends to move in sync with the price of oil, but this year gold has been climbing higher while oil weakens.
The historical correlation between gold and West Texas intermediate crude is a positive 81 per cent, compared with the negative 53 per cent since the beginning of 2009, he said. The risk of inflation that normally sparks gold buying is pretty much absent.
"These relationships have broken down in the past few weeks and these are anything but normal times," Mr. Delisle said.
And that might not be good for gold, which has taken on the role of safe refuge in times of turmoil along with the U.S. dollar, the Japanese yen and U.S. Treasuries.
The S&P/TSX global gold index has been strong during the past few years and this year the index has performed well. The gold miners now account for a record high of 12.5 per cent of the S&P/TSX, and Scotia Capital, which has been overweight the group, now recommends a 10-per-cent holding.
Over the past 30 years, gold stocks have accounted for about 7 per cent of the value of the S&P/TSX.
"If you want to buy low and sell high, you need to be a bit of a contrarian," Mr. Delisle said. "This is really a tactical move on our part. We think the market is exaggerating the pessimism."
Gold, in terms of weaker currencies such as the euro, British pound and Canadian dollar, is at a record high, said Bob Tebbutt, vice-president of corporate risk management for Peregrine Financial Group Canada Inc. Using Canadian dollars, gold traded at $1,207 an ounce yesterday.
"I guess what you have to say, is gold is finally performing as it should perform in times of uncertainty," Mr. Tebbutt said. "Finally, you are seeing a move to the upside, but it hasn't set a record in U.S.-dollar terms."
Gold traded at a record $1,014.60 (U.S.) an ounce in March, 2008.
However, a look at the S&P/TSX shows the gold mining companies have recently shown some signs of fatigue. The S&P/TSX gold index jumped 4.6 per cent yesterday and it is up 18.1 per cent during the past month, but only 10 per cent so far this year.
The index rose almost 1 per cent in 2008, but that performance was relatively good compared with the 35-per-cent plunge in the S&P/TSX composite index. During the past three and five years, the gold index is up 26.9 and 59.2 per cent, respectively.
"When we look at the broken correlations, we think the reversion [back to the mean] will hurt the relative performance of gold," Mr. Delisle said. "One has to wonder how much more 'market share' gold can gain if the sun ever comes up."
Growing Barrick: Regent grabs the challenge
Barrick Gold became a world beater through a steady stream of acquisitions. It's now the world's biggest, and the new CEO intends to keep it that way
By ANDY HOFFMAN AND VIRGINIA GALT
Lori McLeod
Saturday, January 10, 2009 – Print Edition, Page B1
He has stared down and outmanoeuvred one of the most Machiavellian mining CEOs on the planet, helping to squeeze out more money for shareholders than most ever dreamed of.
He has run multimillion-dollar businesses for a storied Canadian financial firm - before the age of 30.
Those who have worked with him say he is affable, self-assured, disarmingly well spoken and a savvy negotiator with a whip-smart business mind.
Yet Aaron Regent has never faced a challenge quite like this.
Next Friday, he begins his first day as chief executive officer of Barrick Gold Corp., Canada's largest mining company and the world's biggest gold producer.
Without a doubt, it is one of the most high-profile executive jobs in the country, if not the entire global mining industry. Just 43 years old, Mr. Regent seems well aware that his every move is sure to be overanalyzed, ruthlessly scrutinized and publicly mused over.
For added pressure, Barrick's outspoken chairman and its former CEO will be the most watchful critics.
"Barrick is an organization that, if you are in the space, if you are Canadian, you have known the company for a long period of time ... Barrick is an iconic Canadian company," Mr. Regent said in a recent interview.
At first blush, Mr. Regent's new job appears deceptively simple.
After some rocky months, the price of gold has got its groove back amid the worst financial crisis since the Great Depression. Barrick's management is widely considered the best in the industry. And the company's bulging portfolio of 27 operating mines includes the flagship Goldstrike operation in Nevada - the cash-printing deposit that was picked up for a song and has proven a consistent star in good times and bad.
"Barrick is certainly one of those companies that could run on auto pilot. It has such a depth of management," says BMO Nesbitt Burns analyst David Haughton.
Of course, Barrick is not without its share of pressing issues - none more than finding new sources of gold that will allow the company to increase its already massive production levels. Adding to the urgency is the fact that output is starting to decline. Toronto-based Barrick produced just over eight million ounces of gold in 2007. This year, it expects to produce between 7.6 million and 7.8 million ounces.
Barrick has always grown primarily through acquisitions and that is unlikely to change with Mr. Regent running the show. In fact, with the costs of building new mines remaining high and gold mining asset values plunging in the wake of the stock market crash, it's likely to accelerate.
"We're looking to grow the company," Mr. Regent said. "Given what's going on in the world markets these days, there's going to be some interesting potential acquisition opportunities. So it's going to be pretty exciting."
Began as a CA
Born in Ireland and raised in Alberta, Mr. Regent earned a bachelor of arts degree from the University of Western Ontario before getting his start in business as a chartered account. Yet he says he is attracted to the entrepreneurial as well as the blue-collar aspect of mining "If you go to the mines, if you go underground, these are just terrific people, salt of the earth, working hard," he says. "I like that ... I really like the sector. I like the people in it , I like the challenges that come with it."
He won't be facing those challenges alone, but that could prove claustrophobic. There are few larger presences in Canadian business than Barrick's 81-year-old chairman Peter Munk, who is sure to keep a close hand on the tiller of a company he founded a quarter century ago.
"Peter's a great guy, he's an inspiring guy and he's just a great Canadian when you look at not only what he's done with Barrick, but other things as well ... It's going to be a great partnership," said Mr. Regent, who is a board member at the Sick Kids Hospital Foundation in Toronto and a former board member of the National Ballet of Canada.
In addition to Mr. Munk, Barrick's new CEO will also find himself working closely with his own predecessor. Greg Wilkins is a Munk protégé who had been groomed for the top Barrick job for more than a decade when he took on the role in 2003. He had to resign the post last year after being diagnosed with a serious illness. While he continues to receive treatment, Mr. Wilkins remains the company's executive vice-chairman, putting in a full shift at the Barrick offices in Toronto most weekdays.
Mr. Regent has certainly proven himself a team player before. He has spent most of his career at the company that was once known as Brascan Corp. and is now called Brookfield Asset Management - the Canadian conglomerate renowned for its brainy team of executives and ruthless deal making.
One of Mr. Regent's closest colleagues over the years has been Derek Pannell, the chairman of the Brookfield Infrastructure Fund (where Mr. Regent was co-CEO) and the former CEO of the combined mining firms Falconbridge and Noranda (where Mr. Regent was president).
Brookfield's culture is exceedingly collaborative, Mr. Pannell points out. The company's executives are situated in an open concept office that resembles a trading floor and are in constant communication. "Aaron has dealt with situations like that extremely well. That's not going to be anything new," Mr. Pannell says of his former colleague's ability to get along with others and build consensus.
Mr. Regent served as CEO of Falconbridge before its merger with Noranda. At the time, Falconbridge was 59 per cent controlled by Brascan. Despite Brascan's stranglehold on the nickel miner, Mr. Regent was able to effectively manage and grow the company ahead of the deal, while balancing the demands of the controlling shareholder with those of other investors.
"He had the experience of being pretty closely watched, as you can imagine. But he also satisfied the minority shareholders," Mr. Pannell said.
Together, Mr. Pannell and Mr. Regent combined as the key figures on the Falconbridge team that managed to win an $18-billion or $63.25-a-share takeover bid from Anglo-Swiss miner Xstrata PLC in 2006.
Those involved in the frenzied takeover battle credit Mr. Regent with helping keep Xstrata motivated to raise its offer, despite the fact that it controlled nearly 25 per cent of Falconbridge. The young executive spearheaded a deal to sell the company's Nikkelverk nickel refinery in Norway. The $650-million offer for the facility added credence to Falconbridge's proposed three-way merger with rival Inco and U.S.-based Phelps Dodge, as it was made to meet competition concerns from European regulators.
"It kept the tension up with Xstrata enough that they needed to raise their offer [for Falconbridge]," said an executive involved in the deal.
Mr. Regent's tactical moves were so impressive that Xstrata's burly CEO Mick Davis reportedly offered him the chance to run Xstrata's nickel division once the takeover was complete. Mr. Regent, however, returned to Brookfield where he was soon offered the co-CEO role at the conglomerate's new infrastructure fund. Much of the fund's investments have been internationally focused, including deals for power assets in South American countries such as Brazil.
None of that, however, has likely prepared him for the political challenges that Barrick is facing, particularly at its operations in Africa.
African setbacks
For Barrick, Tanzania was supposed to be a new source of bullion riches and a country that would serve as a staging ground for expansion into Africa.
Yet so far, it has proven an exceedingly difficult place for the gold giant to operate.
Last month, more than a thousand people stormed Barrick's North Mara gold mine, forcing a temporary production halt. The attackers stole gold ore, destroyed mining equipment and set an excavator ablaze, causing more than $7-million (U.S.) in damages.
The shocking incident has raised questions about the company's future in Tanzania, where it operates three mines and is in the late stages of constructing a fourth. The average cash costs for the Tanzania mines has climbed to more than $600 an ounce, among the highest at the company. North Mara is the most problematic. Production costs skyrocketed to more than $1,000 an ounce in the third quarter, well above the price of gold.
"It's a difficult operating environment to say the least," says Barrick spokesman Vince Borg.
As its operations in more stable regions such as the United States and South America continue to be depleted, Barrick has had to go further afield to find new gold and replenish its reserves. Last year, its Tanzanian mines produced 605,000 ounces of gold, less than 10 per cent of the eight million ounces Barrick produced from its entire fleet of operations. Yet the North Mara situation illustrates the inherent difficulties of mining in Africa.
Barrick wants the Tanzanian government to not only improve security but also introduce measures to boost the area's economy and create viable employment for those who don't work at the mine.
Tundu Lissu, a Tanzanian lawyer and activist, who has represented clients in opposition to Barrick, said the loss of artisanal mining and associated economic activities is at the crux of the problems between the company and the community. He said the compensation paid to some locals to offset the loss of income has been largely inadequate.
"The process of creating this mine, which is now owned by Barrick, meant economic ruin to thousands of people," Mr. Lissu said in an interview.
The lawyer, who is based in Dar es Salaam, said many Tanzanians have come to have a deep mistrust of major mining companies and the industry in general. Several Tanzanian cabinet ministers are facing corruption allegations related to mining.
The hunt for assets
If Mr. Regent is going to top up Barrick's diminishing gold assets, he's likely going to have to head to other politically and socially difficult regions. There just aren't enough big gold deposits left in developed countries to have an impact on Barrick's production profile.
"The thing with Barrick is that when they already produce eight million ounces of gold per year, which is nearly 10 per cent of global mine supply, it needs to be something big," BMO's Mr. Haughton said.
As for what might be on Barrick's shopping list, industry sources have speculated that the company could look to Centerra Gold Inc.'s promising but politically challenging gold operations in Kyrgyzstan and Mongolia that have the potential to add more than half a million ounces of production per year. Another potential target is Australia's Lihir Gold Ltd., an Australian miner which has a major mine in Papua New Guinea, a country where Barrick already operates.
To be sure, as Barrick is forced to more challenging places to mine gold, Mr. Regent will have to call on his full arsenal of people skills. Already an accomplished negotiator, deal maker and financial whiz, he will have to add gold sector diplomat to his list of credentials.
Mr. Haughton says Mr. Regent won't only be representing Barrick, but because of the company's size, he'll be an ambassador for the entire industry.
"He would have to be cognizant of that burden ... it's a very prominent position in the industry, one that Barrick has earned."
THE GLOBAL PUSH
Barrick was founded in 1983 by Peter Munk. It has 27 operating mines and reserves of 124.6 million ounces. Revenue for 2007 was $6.33-billion (U.S.). Below are key developments in the company's global reach.
1994: Barrick branched out beyond North America with the acquisition of Lac Minerals, which had mines in Canada, the U.S. and Chile.
1996: Expanded its South American presence by acquiring Arequipa Resources, which had exploration properties in Peru.
1999: Moved in to Africa with the purchase of Sutton Resources, adding mineral properties in Tanzania, including the Bulyanhulu gold project, which began production in April, 2001. That year, Barrick produced about 3.6 million ounces of gold.
2000: Acquired Pangea Goldfields, a mining exploration company with properties in Tanzania, Canada and Peru. As part of the purchase, the company obtained a 70 per cent interest in the Tulawaka mine in Tanzania. Tulawaka began production in 2005.
2001: Barrick merged with Homestake Mining Co., and added mines in North America, South America and Australia to its portfolio.
2004: Formed strategic partnerships in Russia and Central Asia. Gold production was 4.96 million ounces.
2006: Acquired Placer Dome Inc., adding twelve new mines and a number of advanced exploration and development projects to its global portfolio.
2007: Production of gold hits 8.06 million ounces.
Source: company website, annual reports
Barrick Gold Corp.
Yesterday's close $39.20, unchanged
Q&A WITH ROBERT R. PRECHTER, AUTHOR OF CONQUER THE CRASH
Why has gold been seen historically as a safe haven, and who has used it as such? Has it really been one?
Gold has been a safe haven in times of utter monetary breakdown, but not in other hard times. Contrary to myth, since gold was freed in 1970, it has not been a very a good investment on average during economic contractions. It has performed far better during economic expansions. In 2008, I did a study that shows this point clearly. That's why I was not surprised to see gold and silver peak in March, shortly after the economy stopped expanding and the recession began.
How has it performed versus other asset classes, for example, over an extended period of time?
Gold has underperformed just about every investment. You can make gold look good by choosing the dates of lows in gold to do your measuring, but not otherwise. Gold is money. It does not benefit from production, as stock shares so, or from compound interest, as bonds do.
Thus far, is it maintaining this status in the current financial market turmoil, if not, why not, if so, is this expected to continue and/or strengthen?
Gold has been quite stable, rising less than many other commodities from 1999 to 2008 and falling less since the highs. I expect it to continue falling less than other commodities. But during deflations, such as we have now, cash is usually the best thing to have. This time, the fiat monetary system is at risk, though, so I have advocated holding some gold.
Time may be right for gold stocks to shine
By DAVID BERMAN
Saturday, January 10, 2009 – Print Edition, Page B4
You might think that gold stocks would be the place to be these days: The price of gold is strong and investors are desperate for safe havens as the global economy crumbles.
Curiously, though, a rally in the shares of gold producers has been AWOL. Since the start of 2008, gold has risen a respectable 2.6 per cent. Over the same period, however, the Philadelphia Stock Exchange gold and silver index - a 16-member collection of precious metals producers, including Canada's Barrick Gold Corp., Goldcorp Inc. and Kinross Gold Corp. - has tumbled 32.6 per cent after factoring in dividends.
That's not much better than the dismal performance of the S&P 500 and is in line with the steep decline of the S&P/TSX composite index.
It shouldn't be this way. Investors turn to gold producers, as opposed to physical gold, because the producers are seen as leveraged plays on the underlying commodity: Since producers' costs are fixed, substantial gains in the price of gold are pure profit.
The longer-term discrepancies between gold and gold stocks look just as dismal. Over the past five years, to the end of 2008, gold's price has surged more than 110 per cent; gold stocks, as represented by the Philadelphia gold and silver index, have risen just more than 20 per cent. Over the past 10 years, the performance gap has been similar, with gold outperforming gold stocks by 80 percentage points.
The natural conclusion here is that gold stocks simply aren't worth the effort - especially when you consider that they come with the extra risk of management performance, hedging strategies and the political risks of mining in unstable parts of the world.
However, as ugly as the past decade has been, some observers believe that the relative performances of gold and gold producers move in cycles, and a switch could occur. Gold outperformed gold stocks in the second half of the 1990s. Gold underperformed gold stocks from about 2000 until 2003 - and the two were duking it out until the disastrous performance by gold stocks last year.
There is some evidence to suggest that gold stocks could start to shine. John Hussman, of Hussman Funds, compares the price of gold with the Philadelphia gold and silver index to come up with a ratio. Right now, that ratio is more than 7, which is exceptionally high by historic standards.
According to Mr. Hussman, when the ratio is above 5, gold stocks follow with average annualized gains of almost 90 per cent. When the ratio is above 5 and the U.S. economy is weak (as determined by manufacturing activity, or the purchasing managers index, which is in the ditch these days), gold stocks have risen at an average annualized rate of more than 125 per cent.
Gold producers certainly have some explaining to do for their abysmal performance. Perhaps they can redeem themselves in 2009.
Indians ditch stocks for safety in gold
By ANUJ CHOPRA
Special to The Globe and Mail
Wednesday, November 5, 2008 – Print Edition, Page B13
PUNE, INDIA -- Whenever Sandeep Bhujbal, a 35-year-old government clerk, isn't sure where to invest his hard earned money, he goes on a shopping spree.
On a recent broiling afternoon, with a cash-laden pouch tucked under his arm, he dashed to the heart of Laxmi Bazaar, an old crumbling market in Pune, India, negotiating narrow, grimy lanes swarming with honking cars, cows, and hapless pedestrians.
Doors of a lavish, air-conditioned showroom swung open to him, leading to rows of showcases replete with gold bangles, earrings, nose rings, and sideboards sparkling with ornate gold necklaces, bracelets, and anklets.
"In these turbulent times, the stock market is going down, mutual funds are going down, real estate is going down. So where should one invest?" said Mr. Bhujbal, who is loath to reveal the exact value of his purchase in the showroom. "Gold is a sound investment."
As stock values drop precipitously - the Indian Sensex which kissed the 21,000 mark in January has nearly halved since then - experts say a belief reigns among Indian investors that gold is the only safe investment amid the financial turmoil.
India has a voracious hunger for the precious metal that cuts across economic classes. It's customary to present gifts of gold, not just at festivals, but also at the birth of a baby. Parents and in-laws traditionally give gold jewellery as wedding gifts to the bride. Gold is also heavily sought in rural India, where due to low penetration of banking services, people often convert their savings into the yellow metal.
The Indian appetite for gold can have a substantial influence on the price of the metal, and on the fortunes of producers around the world.
The country is the largest single market for the precious metal, much of it in the form of jewellery. It consumes about a quarter of global production - 700 to 800 tons a year. Because 99.6 per cent of that is imported, demand is sensitive not only to international prices but also to fluctuations in the value of the Indian currency, the rupee.
For a year until March, 2008, as international gold prices soared and the rupee remained weak, India's gold imports slumped by a whopping 23.4 per cent, according to the Bombay Bullion Association. High gold prices prompted many Indians to sell their gold and cash in on profits.
Since then, plummeting prices combined with the arrival of a festival and the coming Hindu wedding season may be setting the stage for a recovery in Indian demand.
Gold prices reached a record high of $1,080.30 (U.S.) an ounce in March, before falling more than 20 per cent to a low of $773.90 an ounce in August. Analysts predict gold may average at $900 an ounce in 2008 and $950 next year, down from forecasts of $950 this year and $1,000 next year.
In the first 20 days of October, the All India Gems and Jewellery Trade Federation registered a 66-per-cent rise in gold sales all over India. And sales are continuing to soar as Dhanteras - an auspicious day in the Hindu calendar - and the Diwali festivities kicked off last week, both propitious occasions to splurge on gold.
The popularity of gold and the tendency to hoard it are engrained in Indian society, despite soaring inflation, persistent rupee depreciation, and a continuing liquidity crunch.
Roughly 15,000 tons of gold is squirrelled away in India's private family vaults, according to McKinsey and Co. This is nearly double the gold reserves maintained by U.S. Federal Reserve.
According to the World Gold Council, India's gold consumption this year could cross the 1,000-ton mark for the first time.
"At the moment, gold is the only product that looks set to give a much higher return over the next 90-day period," said Parag Gadgil, 48, a sixth-generation member of the family that owns the 175-year-old P.N. Gadgil jewellers. In recent days, there have been several investors, he says, who withdrew their money from stocks and mutual funds and invested in gold.
"Gold prices don't fluctuate as sharply as shares in a volatile stock market," he said. "If gold prices dip today, they'll hike up tomorrow, giving investors good returns."
Several analysts say that Indians need to kick their gold-buying habit because it is encouraging a nefarious "black economy," as people divert vast sums of undeclared cash income into gold, far from the prying eyes of tax-inspectors.
According to Arun Kumar, author of The Black Economy in India, India's black economy is nearly 50 per cent of GDP, though government estimates are far more modest.
This addiction to the metal is also hurting India's growth prospects, some analysts say. If, instead of locking away annual savings in gold, Indians were investing them in productive business assets, Morgan Stanley estimates the country's GDP growth would be higher by 0.3 to 0.4 per cent.
But not all analysts buy that argument.
"Gold buying does not eat into GDP growth," said Jill Leyland, a London-based economist at the World Gold Council. "Gold is not locked away - it is always easy to sell back, whether in jewellery or bar/coin form, and the gold market generally is very liquid."
Gold in India is primarily sold as jewellery, Ms. Leyland points out, and the jewellery industry is a job multiplier as it supports goldsmiths, artisans and retailers.
Meanwhile, amid a financial crisis, investors like Mr. Bhujbal are reaffirming their faith in gold. With a shrewd eye for a bargain, he started buying in early September, when gold prices plumbed close to 11,000 rupees ($266.25) per 10 grams.
"I'll sell when gold prices touch the sky again," he said.
Gold a victim of its own success, Munk argues
Barrick founder says the precious metal has not behaved as expected during the financial crisis but that its time to shine is coming
By ANDY HOFFMAN
MINING REPORTER
Friday, October 31, 2008 – Print Edition, Page B5
The global financial meltdown should have settled the long-standing debate between gold bugs who consider bullion the ultimate store of value and those who think the yellow metal is merely another commodity.
Instead, it's proven both camps wrong, at least so far, according to Peter Munk, the founder and chairman of the world's largest gold miner, Barrick Gold Corp.
"Unfortunately, the problem is that gold falls between those two things," Mr. Munk said in an interview yesterday after Toronto-based Barrick reported a 26-per-cent drop in third-quarter profit to $254-million and reiterated its production and cost guidance for the year.
If ever there was a time for gold to shine, it should have come with the collapse of Lehman Brothers and other financial institutions worldwide.
Gold soared during the market crash of 1987 and in the months following the Sept. 11, 2001, terrorist attacks.
Yet during the biggest financial crisis since the Great Depression, bullion has tumbled from its all-time high of $1,032 (U.S.) in March, to less than $700 an ounce last week.
"The unprecedented storm we have just gone through is the ideal condition that gold bugs always foresaw as being the day you are holding gold for, because it will go through the roof. ... It begs the question, has the global financial collapse divorced itself from gold and if so, what kind of store of value is it?" Mr. Munk said.
At the same time, gold hasn't imploded like other commodities. Metals including nickel, copper and aluminum have each fallen by more than 50 per cent. Had it tracked the price of zinc, sulphuric acid or soy beans, gold might be fetching less than $400 an ounce. Gold closed at $738.50 yesterday, down $15.50.
"That shows you that anybody who is saying it is just a commodity is wrong," said Mr. Munk, who is Barrick's acting chief executive officer.
So what happened? According to Mr. Munk, gold became a victim of its own success. During the darkest days of the crisis, when lending completely dried up, no one could borrow money from banks, including the world's wealthiest individuals, many of whom the octogenarian entrepreneur pals around with.
Gold, which had appreciated sharply over five years from less than $400 an ounce, became the only source of liquidity for short-term funding obligations. From hedge funds and mutual funds to the European construction company, Mr. Munk believes selling gold was the one option many had to raise capital without taking a nasty loss.
At the same time, the unexpected rise in the U.S. dollar, spurred by the government injection of more than $1-trillion to encourage lending and prop up failing financial institutions, has further weakened the gold price.
The greenback's stunning rise has been inversely correlated to gold's decline. Mr. Munk believes the U.S. dollar is certain to fall and that can only mean better times for the gold price.
In response to the downturn, Barrick said it is reviewing its capital spending and could delay some projects. Mr. Munk conceded the company is also considering bargain hunting for rival gold producers amid the stock market carnage.
"When there is blood on the streets, you buy, you don't sell," he said.
He may not be in the CEO's seat when the next deal happens. Barrick has compiled a short list of candidates to replace Greg Wilkins who had to step down because of illness and a decision is expected by year-end.
Debt unwinding propels gold higher
By ALLAN ROBINSON
Thursday, October 9, 2008 – Print Edition, Page B14
Deflation is in the air, yet gold rose yesterday to more than $900 (U.S.) an ounce.
The S&P/TSX global gold index, which has been lagging bullion, soared 19 per cent yesterday to 267.35 points.
Gold bullion, like the world's currencies and bond markets, is caught up in the massive unwinding of debt by speculative hedge funds, said Bill Belovay, a portfolio manager for BMO Precious Metals Fund, which has about $60-million (Canadian) under management.
"The gold price has risen due to the increase in the lease rates by the central banks," said Mr. Belovay, who is both a geologist and a mineral economist.
WHAT ARE LEASE RATES?
Speculative hedge funds were borrowing gold at rates of interest below 1 per cent and the five-year average rate was 0.12 per cent, he said. The funds would turn around and sell the gold and reinvest the proceeds in higher yielding securities such as European bonds. It was a part of what was known as the carry trade.
However, the one-month gold lease rate has increased to 2.65 per cent as banks worry about the creditworthiness of the borrowers. "Now comes the time that [the funds] have to repay the gold," Mr. Belovay said. Gold is rising as funds have to buy the gold they need to return to the banks.
Carry trades are no longer lucrative for hedge funds and the banks are clearly saying the gold lending window is closed. "It's a slow painful way of giving a message to the system."
But from the perspective of a long-term investing strategy, the changes under way are positive for bullion, Mr. Belovay said. The withdrawal of banks from the gold lending business to funds should result in less gold coming on the market, he said. "In looking further out, the credit crunch should eventually cause the gold price to rise because there is no capital available to start new mines, so the supply should diminish."
The BMO Precious Metals Fund has good exposure to senior gold mining companies and potential merger and acquisition candidates sitting on gold deposits once the credit crunch eases, Mr. Belovay said. "But in the short term everything is high risk," he said. "The game is changing every hour, basically."
A PERFECT MARKET
But right now it looks like a perfect market for bullion. The fear over the financial crisis is enhancing it as a safe haven, the demand for gold coins by the general public is so strong it is outstripping the ability of various mints to produce them and there are even indications that central banks may be reconsidering their gold-selling strategies with an eye on increasing their exposure to gold, according to Dundee Wealth Management Inc.
Strategists are also looking for the possible decoupling of gold from the U.S. dollar. Traditionally, U.S.-dollar strength tends to correlate with weaker bullion prices.
"Indeed, one day the gold market will be less slavishly tied to the dollar/euro rate, but I don't know when that day will come," said Martin Murenbeeld, chief economist at Dundee Wealth. "Both Europe and the U.S. are moving rapidly toward significant fiscal and monetary reflation, meaning gold should rise against both currencies, regardless of whether the dollar is up or down against the euro."
And there are signs that may be happening. "On Monday, the euro dropped against the dollar and gold rose $30 (U.S.)," he said. "We are starting to see some signs of the break. That is the key."
'I'll find you gold in five minutes'
150 years after the bonanza hit B.C., panners are still sifting through the silt of the Fraser River on a search for that big, yellow score. Patrick White reports
By PATRICK WHITE
Friday, August 15, 2008 – Print Edition, Page L1
YALE, B.C. -- Yukon Dan clops down to the riverbank and straight into 1858. One hand grasping a rusty shovel, the other holding a bag heavy with $15,000 in gold nuggets, he scans the shore for a prosperous patch of gravel, occasionally dropping the bag (it never leaves his side, not even in bed) to stroke his Santa Claus beard and rap his fingers on his generous belly.
"Lotta people think the gold around here was all gobbled up a century ago," he says, the khaki-coloured Fraser River gurgling past his gumboots.
"They don't understand. I'll find you gold in five minutes."
Exactly 150 years ago, more than 10,000 Yukon Dan look-alikes were crawling over gravel bars along this burbling stretch of the Fraser near Yale, B.C., searching for a big, yellow score.
"This is where it all started," says Yukon Dan, looking downriver to a deserted shore once occupied by hundreds of 19th-century panners, "the whole darn province."
Yukon Dan and hundreds of modern-day prospectors like him revel in those historical footsteps, though not all look the part. City folk, suburbanites and middle-class professionals can all be found among the gold hounds sloshing about the province's creek beds and river valleys. Ask them why they tote a pan everywhere they go and most will say it's just a hobby, a way to pass time, a way to link with the province's past. But their eyes hint at another reason: There are still bonanzas of gold in these here hills, and, with prices topping $1,000 an ounce earlier this year, untold riches as well.
"Oh yeah, people still get the fever so bad, man, they can taste it," says Yukon Dan, otherwise known as Dan Moore, whose nickname came from a kid to whom he taught "the art of gold panning" years ago.
Once a professional Yukon gold miner, Mr. Moore now spends most of his time attending worldwide panning competitions and teaching everyone from school children to lawyers and doctors to pan. In 1998, he won a silver medal in the team panning event with four other Canadians at the World Gold Panning Championships in California.
Since then he's travelled to Poland, Slovakia, South Africa and Germany to compete in speed competitions in which the fastest person to pan a set number of nuggets wins.
Here on the Fraser, he is giving another demonstration in preparation for the Fraser River Gold Panning Championships, which he'll host on Aug. 23 and 24. He expects about 150 gold seekers to attend.
"First you want to shake it around with lots of water," he says, tossing the gravel like a chef sautéing onions. "The gold is 19 times heavier than water and it all sinks to the bottom. You mostly find really fine flour gold around here," but, he says, arching his eyebrows, "you never know."
It's backbreaking work, the main reason why Mr. Moore, 45, focuses less on striking it rich and more on teaching others. Last year, he taught panning techniques to Abbotsford homemaker Cheryl Dallaire, her basketball referee husband and three teens. It's been a source of family bonding ever since. "It's something to do without fighting," says Ms. Dallaire. "We haven't gone as far as getting a claim yet. Maybe when the kids leave home."
Staking a claim separates the mild from the severe cases of gold fever. The province permits gold panning at a few locations. On most Crown land, prospectors need to map out and register a claim online. To maintain a placer claim year after year, they have to pay $5 a hectare and demonstrate that they're actively prospecting the land. The process has changed little in a century and a half.
Recently claims have been coming in at a rapid pace.
"As soon as gold goes above $600 an ounce, people start blanket claiming the entire province," says Norm Maradyn, owner of the Happy Prospector, a jewellery store with locations in Agassiz and Hope, B.C., who has a few claims of his own. "They make it pretty easy. If you have a GPS and an Internet link you can do it all online from the bush."
Mr. Maradyn caught the gold bug as a 17-year-old production driller at a mine in the Northwest Territories. A few co-workers showed him how to pan and, at age 44, he hasn't let up.
"I get out there about two months of the year," he says over a glass display case containing his prized $1,000-plus nuggets. "If the right opportunity struck, I'd be out there full-time. You'd see a 'gone prospecting' sign in the window."
During those two months, he traverses much of the province picking the brains of old-timers who might have a few golden tips. "If I'm going through Princeton, I always stop by the pub and buy the old-timers a round. Some are tight-lipped, but you never know what they might tell you."
One elderly acquaintance recently assayed a claim near Quesnel that he had been ignoring for decades only to find it was full of bornite, gold and other precious minerals.
"The old guy's probably sitting on $35- to $50-million there," says Mr. Maradyn, who keeps pictures of his own more modest strikes on his cellphone. "You hear stories like that and it keeps you going. Y'know, the early prospectors only took about 25 per cent of this province's gold wealth, according to mineral surveys. That means three-quarters [is] still out there waiting for you and me."
He isn't deterred by his own lack of a big strike.
"The worst day prospecting on a creek beats the best day at the office," he says.
Some amateur prospectors don't pay as much attention to the rules as Mr. Maradyn. Some scour staked creek beds by cover of night using sophisticated metal detectors. Others stroll along creek banks disregarding claims and simply look for larger pieces of gold in the water visible from the surface, a practice known as sniping, punishable with a $25,000 fine or six months in jail.
"Every spring that snow melts and pushes the gold off the mountains and down the streams," says Ed McDonald, an amateur gold hunter living in Hope who snipes every second day during good weather. "That means every year you got a fresh crop of gold in there. Not too many people know that."
Like many amateurs, Mr. McDonald has no plans to sell the gold he has found. He just likes having it around the small motel room he calls home. "Just a hobby," he says. But not so casual a hobby that he shares his sniping tips.
Back on the Fraser, Yukon Dan peers at his pan after a series of swirls. It's nearly empty but for fine black sand and a few iridescent flecks smaller than a grain of salt. "There it is, colour in the pan like the stars in the sky."
How much is it worth, he is asked.
"You get 6,000 more pans like this and you've got an ounce," he says. "But you never know. Might get more. Might get less. But I'll guarantee you'll catch the fever."