Barrick founder sets no limits on gold price


By William MacNamara
Financial Times, London
Sunday, March 8, 2009

Peter Munk, founder and chairman of the world's biggest gold miner, says even now he is no "gold bug." In a career spanning 60 years, the 82-year-old entrepreneur amassed fortunes in hi-fi consoles and a south Pacific hotel chain before turning to gold mining. A mystical belief in the metal’s value is irrelevant when it quite obviously rises and falls like anything else, he says.

But in his role at Barrick Gold, the Canadian miner, he sits atop the industry at a moment of vindication for diehard gold bugs. Inflation expectations and a fearful impulse toward bullion hoarding have pushed the gold price to sustained levels above $900 an ounce.

Sitting in the London offices of UBS, he says: "One used to think that UBS shares were among the safest investments one could possibly make." Billions of dollars have been wiped out on such assumptions, he says.

"Is there anywhere else people can put their money and not lose it? On this question I have had more phone calls in the past six months than ever before -- from people who have $120,000 inherited from their grandmother, and from hedge fund managers with millions. I am not saying George Soros, but people of that calibre have told me they are investing in gold."

He acknowledges that the gold price -- which breached $1,000 an ounce last month -- might be inflated. The pile-in for government bonds and gold may be characterised by the same herd mentality that saw investors snap up equities then dump them last year.

If it is possible that the gold price is too high, "equally possible is the opposite," he says.

"Gold is a small market, susceptible to small moves. Let's say a small percentage of the world's central banks -- or simply the United Arab Emirates, by itself -- do not believe President Obama's pledge that he will halve the US deficit by the end of his first term. They shift some of their dollar reserves into gold. It would not take many decisions of this kind to push the price above $2,000 per ounce."

More important, he says, the global economy will recover but individual investors have been traumatised. "A feeling of insecurity is here to stay. The result is that the appeal of gold as a hedge has broadened enormously."

When markets do recover, he adds, so will jewellery demand, the largest component of gold demand.

If the gold price has found a new floor at about $800 an ounce, Barrick and other big gold miners stand to see a surge in revenues this year. This has led to speculation that gold mining companies -- somewhat like Chinese mining companies -- could snap up other assets inexpensively and become more diversified miners.

"Base metals are uppermost in the minds of the two or three leading gold companies," Mr Munk says. But diversification is "interesting but not a reality for Barrick."

Shareholders pay a premium for pure gold companies precisely because they are a proxy for the metal, whose value does not track industrial cycles with the precision of industrial metals such as nickel.

Strained gold supplies are another compelling argument for a high gold price in the future, Mr Munk says. Existing mines are aging and becoming more expensive as they are forced to go deeper.

He and friends Nathaniel Rothschild and Oleg Deripaska are developing the Mediterranean's largest super-yacht marina, a half-billion dollar project on the site of a former naval base in Montenegro.

He rejects any criticism of the timing. "If the current elite goes bust, it will simply be replaced by a new elite, who will buy their boats. Look around Davos this year. So Goldman Sachs cancels their dinner party. In its place a Kazakh company has a dinner party."

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