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Why invest in a company so disdainful of its own product?

Section: Daily Dispatches

11:56p ET Wednesday, April 24, 2013

Dear Friend of GATA and Gold:

Today's commentary by David Olive of the Toronto Star about Barrick Gold and its board chairman, Peter Munk, appended here, hauls out all the usual red herrings used against gold investment to suggest that gold's adherents are just doomsday cult members. Meanwhile Olive refuses to acknowledge the threat gold poses to central bank control of the world financial system and the enormous but largely surreptitious efforts central banks make to suppress gold's price. Anyone might safely bet his life that, as a certified mainstream financial journalist, Olive has taken an oath never, ever to put a question to a central bank, particularly about gold. Polite company doesn't do that. But then polite company is never journalism.

Rather, Olive's commentary is interesting for conveying the disdain Barrick's chairman always has had and continues to have for his company's own product. Of course, as Olive's commentary briefly suggests, years ago Barrick was not only disdaining its own product but was a primary intermediary in the Western central bank scheme to hold gold prices down through gold leasing, so much so that the company even claimed in federal court in New Orleans that, as the agent of central banks, it should share their sovereign immunity against lawsuit.

... Dispatch continues below ...


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Quite apart from the prospects for gold in particular, investors might wonder why they should invest in a company so unenthusiastic about its own product. But this question doesn't seem to occur to Olive. Acknowledging himself as a gold disdainer too, he just seems to be glad to have Munk around to discredit gold and, by extension, the whole gold mining industry.

But as most of that industry remains silent in the face of decades of central bank assault, including this month's assault, the most comprehensive assault ever, the industry discredits itself these days just fine without any help from Munk.

CHRIS POWELL, Secretary/Treasurer
Gold Anti-Trust Action Committee Inc.

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Munk Warned Against Irrational Exuberance in Gold

By David Olive
Toronto Star
Wednesday, April 24, 2013

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.

Munk begged to differ with the theorizing of this "thinking goldbug" about a commodity whose price movements he regards as highly unpredictable. Munk would know, Barrick having lost a ton of money in the 2000s from a price-hedging strategy that worked like a charm until abruptly going awry. (The knee-jerk goldbugs, far less polished, try to top each other with apocalyptic visions, not excluding the outbreak of Lyme disease in the Holy See.)

Munk observed that "the price of soybeans, the price of corn, the price of copper, the price of tin, the price of rubber, the price of oil -- these have jumped tenfold, much more than gold. And nobody's worried about somebody conjuring up fake rubber."

No, Munk said, the gold spike had everything to do with fear. "You only buy gold as a substitute when you've lost confidence in every other asset class," he said. Conversely, when you learn, as I noticed recently, that house prices even in Florida, one of the epicentres of 2000s U.S. housing crash, are recovering, the time to ease up on fear -- and gold hoarding -- has arrived.

With a news media eagerly abetting the Cassandras, investors were whipped into fear about a world rife with terrorism, sovereign debt crises, nuclear-weapons proliferation, a eurocrisis, and a Chinese GDP slowdown. World ends, film at 11.

Today it doesn't take a Pollyanna to observe that North Korea's only ally, China, is leaning on Pyongyang to throttle back its nuclear ambitions. That al-Qaeda has been effectively routed. That Europeans are bent on keeping the EU intact. And that America is rising from its economic sickbed. It's time to diversify again, this time away from an investment that does not generate income.

Barrick is now bracing for a long bear market in gold, whose fair-market value is likely closer to US$800 than the current US$1,420, even after gold's 40 per cent tumble since last year's peak. The traditional ratio of inflation to the gold price is 3.2 to 1. At today's still overblown gold price, that ratio is an unsustainable 6 to 1.

Munk himself long ago diversified. He might just now hide out from his pension-fund tormentors at the Adriatic marina resort he began building as the gold price was beginning its climb.

* * *

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