Barrick CEO sees 'perfect storm' raising gold price


By Cameron French
Wednesday, September 19, 2007

TORONTO -- Current U.S. conditions of low interest rates and potential inflationary pressures are a "perfect storm" for gold prices, Barrick Gold Corp. Chief Executive Greg Wilkins said on Wednesday.

While rising inflation boosts gold's allure as a safe-haven investment, it also typically prompts interest rate hikes, which in turn cool demand and lift the U.S. dollar, which pushes gold lower.

But with credit conditions tight due to the U.S. subprime mortgage meltdown, the U.S. Federal Reserve cut its key federal funds rate by 50 basis points to 4.75 percent on Tuesday, sparking gold prices to 16-month highs.

"What we have is inflation plus lower interest rates, and that's not something that we've seen before, and I think that's going to be very bearish for the (U.S.) dollar, which is conversely good for gold," Wilkins told reporters in Toronto.

"I think it's a perfect storm, to be quite honest with you."

While the Fed's rate cut -- which surprised markets that had priced in a more modest 25-basis point cut -- suggested the U.S. central bank is now very concerned about the U.S. economy, Wilkins said he wasn't worried about the impact on demand for gold.

He noted that jewelry demand has come largely from developing countries that have enjoyed very strong economic growth, and that even a global chill from a worst-case scenario U.S. recession would not take a significant bite out of that demand.

"I don't think it's going to really undermine the fundamental impact of what the emerging economies are doing," he said.

Shares of Barrick, the world's largest gold producer, were up 70 Canadian cents at C$39.97 on the Toronto Stock Exchange around midday on Wednesday, a level Wilkins said was "way" undervalued.

The stock is up nearly 12 percent this year, but has struggled to make sustained gains over the past two years.

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