Munk warned against irrational exuberance in gold – by David Olive (Toronto Star – April 24, 2013)

The Toronto Star has the largest circulation in Canada. The paper has an enormous impact on federal and Ontario politics as well as shaping public opinion.

As he prepares to meet shareholders, Peter Munk must deal with a plunging gold price, a stalled mining development and controversy over executive compensation.

If Peter Munk was a genuine goldbug, the kind who see the yellow metal as the “one true way,” a lifetime gold bear like me could hail a comeuppance for the founder and chairman of Toronto-based Barrick Gold Corp., world’s biggest gold miner.

But I don’t, because the GTA philanthropist who rose phoenix-like from the ruins of Clairtone to build a global mining empire has always had a sensible regard for the aptly named “currency of fear.”

Real goldbugs are besotted with a commodity that doesn’t pay interest or dividends, is too cumbersome to be a viable method of exchange, and even as a metal is too soft to be of use in all but a handful of industrial applications, suitable only for jewellery.

By contrast, in some 30 years of building Barrick, Munk has not been an evangelist for gold, despite having a powerful vested interest in being one.

You wouldn’t want to be Peter Munk just now as he prepares to meet shareholders Wednesday at the company’s annual general meeting in Toronto.

The plunge in the world gold price has slashed the value of Barrick stock by more than half, from its $54 peak just 17 months ago. Barrick’s flagship Pascua-Lama gold and silver project in Chile has been suspended over environmental concerns, one of many strategic setbacks in Barrick’s sprawling operations.

Seven major Canadian pension funds are excoriating Barrick over what they regard as an unmerited $11.9-million signing bonus for co-chairman John Thornton after a miserable 2011 in which Barrick lost a staggering $665 million. They’re none too pleased, either, that Munk, 85, has yet to designate a successor. Which makes Munk the leading local example of the Warren Buffett syndrome, now that Frank Stronach has finally left the building.

But give him this: Munk in his way warned against irrational exuberance in gold during its spectacular run-up in price beginning in the late 2000s.

In a Charlie Rose panel discussion back in 2010, Munk’s fellow panelist James Grant, editor of the respected Grant’s Interest Rate Observer, attributed the gold-price spike to feckless central bankers devaluing their currencies by resorting to the printing press to lift troubled economies out of recession.

Global investors driving up the gold price were motivated, Grant asserted, by the alchemy of Ben Bernanke, chairman of the U.S. Federal Reserve Board. The Fed chief was debasing the greenback – the world’s reserve currency – “by inventing U.S dollars on computers, by conjuring money out of nothing.” By that, Grant meant the so-called “quantitative easing” by which the Fed was snapping up U.S. Treasuries to reinforce federal finances.

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