In the Search for Safe Assets, Investors Detour Around Gold

Joseph Foster, manager of the Van Eck International Investors Gold Fund, pointed to rising United States government debt held by the public — which the nonpartisan Congressional Budget Office expects to increase by $12.7 trillion over the next decade from the current $15.8 trillion — as a possible cause of a future increase in the price of gold.

“In a weak economy, these debt problems become magnified and impact the financial system,” Mr. Foster said. “If we get economic weakness and start having debt problems in the United States, gold would become the ultimate safe haven.”

Central bank buying could help increase the price, he added. In 2018, the banks’ net purchases of gold were 651.5 tons, according to the World Gold Council. That’s the most since 1967, when net central bank buying came to 1,404 tons.

Bursts of demand can heavily influence prices because supply has been relatively stable. Additions to supply are hard to find and take long to develop, as with Detour Gold’s open pit mine in Northern Canada, which has been in development since 2012, according to a company spokesman. Continental Gold’s Buriticá project in Colombia should start commercial production next year after nine years of development, reported Paul Begin, Continental’s chief financial officer, but the overall pace of additions to gold supplies has been slow.

In recent years, exploration for gold has slowed, said Elizabeth Xie, co-manager of the American Century Global Gold fund. That’s at least partly because in gold’s last boom, from 2001 to 2011, many mergers and acquisitions were completed at “ridiculous premiums financed by huge debt,” Ms. Xie said. Paying down the debt has come at the cost of some funding for exploration, she said. “That’s been a factor in keeping the gold supply down.”

Ms. Xie spoke favorably of a recent joint venture agreement between Newmont Goldcorp and Barrick Gold. The two companies have combined their operations in Nevada, and savings on operations could amount to “a half-billion dollars per year over the next five years,” she said.

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