Gold will rise for years: Munk

Barrick founder says miner will keep raising dividend as gold gains

Adam Tanner

Globe and Mail Update

14:59 EDT Monday, August 02, 2010

TIVAT, Montenegro — A recent slide in the price of gold is temporary and the precious metal will continue to rise for years, the founder of the world’s largest gold miner Barrick Gold Corp. said on Monday.

Peter Munk, 82, Barrick’s chairman, said in an interview that economic uncertainty and investor wariness about other asset classes – particularly currencies – would continue to support gold, which hit record highs in June.

“I expect the trend to continue because I think once people have lost confidence in their currency, once people have lost big money in equities and in bonds and traditional vehicles, their confidence in gold, especially having seen gold rise year in and year out for a decade, is reinforced,” he told Reuters.

Gold hit a record $1,264.90 (U.S.) an ounce in June as investors flocked to it as a hedge against sovereign debt turmoil in countries such as Greece and Portugal. It has since fallen and traded around the $1,190 level on Monday.

“A temporary setback is normal in all trading situations and is not going to change that,” Mr. Munk said, but added later: “I am categorically not a gold bug.”

Barrick last week said its second-quarter profits rose 59 per cent on record bullion prices, prompting the firm to raise its dividend 20 per cent.

Mr. Munk said the company would keep raising its dividend as the price of gold increases in the future.

“Barrick’s mission right now to maintain its leadership position in the industry is to improve its margins, pay out more dividends, cater more to an ever-greater shareholder base,” he said.

“The higher the gold price, the higher the return. The higher the return, it enables us more to increase our dividends.”

Mr. Munk also said high profit margins would provide a safety cushion for Barrick to operate without hedges. Such contracts offered forward sales at lower gold prices, but limited profit when gold prices rose as they have over the past decade.

Barrick last year spent about $5-billion – resulting in an annual loss – to close out its hedges against lower gold prices.

“It’s a major plus for us because the hedge was a counter-balance liability,” Mr. Munk said on the end of hedging.

Barrick, started in in 1983, has interests in 26 operating mines. Mr. Munk declined to detail any pending acquisitions, but added: “It is economically very prudent to add on to the land holdings, for example, of a perspective area.”

Despite U.S. government assessments that there is vast gold and other mineral potential in Afghanistan, Mr. Munk said that was not a region Barrick was interested in exploring.

“Gold finds are becoming more and more difficult right now,” Mr. Munk said.

“What most large companies do now, they look for mixed metal mines, where gold is a part of other metals and other minerals....I think that is the future growth area for large gold producers.”

Mr. Munk said past hedging made it possible for Barrick to grow by creating a steady cash flow.

He said his experience in the 1950s and 60s with Clairtone, a high-end Canadian stereo company that ultimately failed, helped explain his cautious approach as he built up Barrick.

“I learned more in that year of failure than I did in 50 years,” he said.

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Gold eases on technical selling

SPDR gold ETF sees biggest outflow in a year in July

Frank Tang and Jan Harvey

Globe and Mail Update

13:16 EDT Monday, August 02, 2010

NEW YORK/LONDON — Gold turned lower Monday despite broad metals and commodity gains amid economic optimism, as technical selling put a damper on bullion’s initial rise.

Silver and platinum group metals, however, climbed on positive economic sentiment amid sharp industrial metal gains, while crude oil jumped nearly $3 to above $81 (U.S.) per barrel and as the euro hit its highest level since early May.

In early sessions, gold rose toward $1,200 an ounce, as rallies in other markets stirred fund buying. Wall Street rallied more than 2 per cent on strong corporate earnings.

George Nickas, commodities broker at FC Stone, said gold rose in early sessions on hopes of economic recovery, but technical selling were still pressuring prices.

“The gold market is undecided whether it wants to follow the strength in the industrial metals. If you look only at the gold chart, this is a rally in a down-trending market, so it attracted profit taking,” Mr. Nickas said.

“Last week, the August contract going into first-notice day was extremely weak, and gold traders haven’t shrugged that off yet,” he said.

Gold lost about 5 per cent in July and was among the top percentage losers in the commodities complex.

Analysts said the metal is at risk of falling sharply after breaking below a two-year bullish support channel.

Spot gold rose as high as $1,190.40 an ounce and was last at $1,179.95 an ounce at 12:28 p.m. EDT (1628 GMT), against $1,181.50 late in New York on Friday. U.S. gold futures for December delivery slipped $2.10 to $1,181.80.

Simon Weeks, head of precious metals at the Bank of Nova Scotia, said gold in early sessions had risen above the 100-day moving average at $1,183 an ounce on the back of currency moves and rising oil prices.

However, he added gold remained vulnerable to losses, especially if equity markets continued to climb. “People will liquidate safe havens and put risk on,” he said.

Gold managed to arrest a slide that last week took it to a three-month low of $1,156.90 an ounce and then turn higher in its best run since late May.

Investment in gold has ebbed recently, however, as assets seen as higher risk such as stocks have firmed.

The world’s largest bullion exchange-traded fund, the SPDR Gold Trust , reported its biggest outflow in a year last month, with holdings down more than 38 tonnes in July to 1,282.3 tonnes.

Other assets seen as higher risk also rose, with oil prices climbing nearly 3 per cent above $80 on Monday as macroeconomic indicators in top energy consumers the United States and China showed slower but sustained growth.

DOLLAR WEAK, EURO NEARS $1.32

Despite the Wall Street rally, fears the U.S. recovery is faltering drove the dollar to a three-month low against a basket of currencies, while the euro neared $1.32 for the first time since early May.

Lower prices, meanwhile, encouraged higher gold demand from key bullion-consuming centers China, India and the Middle East.

The World Gold Council said the International Monetary Fund sold 17.4 tonnes of gold in June as part of a planned program of bullion sales. That leaves 120.2 tonnes of gold still to be sold under the program.

Silver was up by over 2 per cent at $18.34 an ounce versus $17.96, making this its strongest one-day performance since early June, while its ratio to gold – or how many ounces of silver are needed to buy an ounce of gold – hit its lowest since mid-May at 65.0.

Platinum was at $1,592 an ounce against $1,566.55, while palladium was at $510 against $491, having hit its highest since mid-May earlier in the day.