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Pierre Lassonde, one of the world’s foremost experts on gold, says the only way is up for the shiny stuff.
He should know as he has made his fortune in the gold game. This week he spoke at a mining seminar in Toronto organized by mining consultant Terry Ortsland, chair of the Mineral Resource Analyst Group.
As a director of a gold company, I am fascinated with the shiny stuff. It’s a barometer of fear and a replacement for paper currencies. Its price moves up or down on bad news and good news and drives the value of gold stocks, but only to a certain extent. And in a tumultuous world of financial, stock market and sovereign meltdowns, gold has been a rising star. Investors have branched out from real estate, equities, bonds and art into gold. I call it the new asset class for the confused.
Lassonde is still a believer, but deconstructed shifts in its market. “There’s been a decoupling of equities from gold prices,” he said. The supply-demand situation is clearly pointing to ever-increasing prices but not necessarily for gold producers.
Lassonde ran Newmont Mining Corp for five years (“it nearly killed me”) and is currently chair of Franco-Nevada, a company he co-founded with Seymour Schulich in 1982. Sitting beside me was another gold bug, and philanthropist, Rob McEwen of Goldcorp who now runs McEwen Mining.
Here is what Lassonde told the seminar on gold prices:
- Demand is up since 2002, but among different buyers: In 2002, 80% of gold was bought as jewellery, 5% industrial and 5% investment. By 2011, gold demand for investment purposes had jumped to 40%.
- In 2008, central banks stopped selling gold and began buying. Of the total, 58% of gold reserves were held by US and EU central banks and 2.6% by Asian central banks. “If they increase to 15% of gold reserves, or 17,359 tonnes, the gold price will increase because annual production is only 2,800 tonnes.”
- Investor demand will continue to increase. ETFs began in 2004 and total 2,800 tonnes. This is only slightly higher than Italy’s gold reserves.
- Gold’s share of asset allocation has gone from 0.5% to 2% between 1980 and 2011 and “will go to 5, 6, 7% in five to 10 years given the current environment”.
For the rest of this column, please go to the National Post website: http://opinion.financialpost.com/2012/10/12/gold-the-new-asset-class-for-the-confused/