Not a matter of if, but when.
The Times
Gold price could treble if China divests dollars, warns mining boss
Jenny Booth
January 29, 2009
The gold price is likely to hit record highs in dollar terms as fears grow about the stability of the US currency, the chairman of Barrick Gold said today at the World Economic Forum (WEF) in Davos.
The founder of the world’s largest goldmining company said that there was even a possibility that central banks, including China’s, might start to switch from dollar holdings to gold, which could cause the price of the metal to treble.
“Gold is at record levels in every currency except dollars," Peter Munk told Reuters at the WEF meeting.
"Even within dollar terms it is within a few percentage points of an all-time high, at a time when all the other major commodities are falling.”
Mr Munk said: “Whether it’s the currency effect or a reaction to a feeling of uncertainty, gold, in my opinion, is more likely to go up than down.”
The gold price was up today, trading at about $890 at 1500GM. At present the record high is $1,030.80 an ounce, achieved in March last year.
Mr Munk emphasised that he was merely weighing the odds.
“It would be stupid to assume commodities prices can only go one way,” he said, adding that physical demand for gold jewellery was not high during the economic downturn.
Gold has been one of the best-performing assets of recent months, rising in value by nearly 17 per cent since late October even as the price of other commodities, such as oil and copper, has dropped sharply. (This is because gold is more monetary than commodity. Silver is a more even mix but it is still monetary as well as industrial. - Jesse)
Investors have bought heavily into physical bullion in the form of coins and bars, and physically backed assets, such as exchange-traded funds, as a safe store of value at a time of increased volatility in other asset prices.
Mr Munk said that downward pressure on the dollar, partly due to massive US spending and printing money to stimulate the economy, would increase gold’s attractions as an investment even further.
Gold usually moves in the opposite direction to the dollar, as it is often bought as a hedge against weakness in the US currency. (Gold has been moving with the dollar as foreigner flee out of other currencies and begin to treat gold as a safe haven alternative with, not in lieu of, the dollar - Jesse)
“My personal feeling is that with the rescue packages calling for trillions, not billions ... the value of the [US] currency has to go down,” Mr Munk said.
He said that there was a possibility that central banks, including that of China, a major dollar asset holder, might start buying gold. (Rumour is that the physical market is so tight they have been calling quietly around looking to lock in major sources of supply - Jesse)
“If they decide to diversify, we assume into gold, then we start to talk about a trebling or quadrupling of the gold price," he said. "It could be followed by Russia or Kuwait." (They could just be jawboning Tim Geithner back with a credible threat as well - Jesse)
“I don’t think it’s likely, but it’s more likely. I would not have said it two years ago — I’m not a gold bug — but it’s more likely than it was two years ago.”
He added that his company did not now hedge its output — meaning use derivatives to insure against a fall in price — and relied on the price climbing.
In the past its successful hedging allowed it to make key acquisitions.
“It would be dumb to hedge,” Mr Munk said. (Bill Murphy told you that when gold was at $300 per ounce, and he was right - Jesse)
