DREAM ON, DREAMERS, Part 1...: Buy Gold while you still can
(Property owners are the dreamers, i think)

EXCERPT from an interview with Newmont's Pierre Lasonde

We are seeing Asia not only exporting deflation in goods but also in services. There is no pricing power on anything. So, you see the oil price increases fivefold and people say ‘inflation’s gotta come, inflation’s gotta come,’ but what we are seeing is the producers of goods and services absorbing a lot of the price increase, because they have no pricing power. The Chinese don’t want to lose market share, so they are cutting their margins to the bone to compete with the Koreans, Indians, Vietnamese and other emerging Asian economies. So we expect to see inflation maybe go up to 4 or 5%, but we are not going to see the 15-18% inflation of the 1970s.

GMSR: It’s pretty clear that the debt pyramid can’t stand those rates anyway.

PL: That’s right. On the other side of the coin, deflation is lurking right around the corner and that is why long bonds are so low. There is such overcapacity in everything that there is no good investment anywhere, so people are parking their money in long bonds. We saw the same thing in the 1930s. Those are the major differences.

GMSR: Too much money with no place to go is not a good rationale for bull markets, but it does seem to be a key part of the story. Where is this all going?

PL:If you look at what the U.S. has done with its current account deficit, over the last six years it has created a huge amount of liquidity that is sloshing around the world in the form of foreign exchange reserves. If you take just the four major Asian central banks (Japan, China, Korea, Taiwan), they have accumulated over two trillion dollars of foreign exchange.

These U.S. dollar balances are way beyond their requirements. That is money the U.S. sent over to these countries that the banks have had to buy back, but to do so they have printed their own currency and that money is now back into the market system, just sloshing around the world. It was the same phenomena that caused the boom in the 1970s and the 1920s. There’s just too much liquidity.

GMSR: Monetary inflation, and only selective price inflation?

PL: It’s more like asset inflation versus general inflation. It shows up first in the current account deficit, as we, the American people, can’t seem to buy enough of the cheap, wonderful products Asia has to offer. And since we don’t have the money to pay for all of our purchases, these kind strangers provide us with the financing to buy their products.

If you go back to the 1970s, for the first time in about 100 years the U.S. had a current account deficit. It was two billion dollars for the whole year, the whole year! Today it is about $60 billion a month, $2 billion a day. That money ended up in the French, German and Italian central banks because they were our main trading partners. The president of France, Charles de Gaulle, looked at his foreign exchange and he could see that the dollar was basically going to depreciate because the U.S. was printing too much money.

He is the one who said (in those days the dollar was backed by gold at $35 per ounce) ‘I am going to send you your dollars back, send me the gold.’ Nixon realized in about two nanoseconds that if he was to oblige, he would have no gold left in Fort Knox. What did he do in 1971? He closed the gold window, and then gold took off. Today we are not on the gold exchange mechanism, but it will react the same way in private hands.

GMSR: Why do you think there is such a delayed response? It seems that the handwriting on the wall is awfully clear, and that this will end badly and to the benefit of gold. That said, why is taking so long for what seems like an obvious reality to sink in?

PL: As humans, we are all prisoners of our past. For the last 10 years, we kept dreaming. I think the movie is playing a little differently now because one, we have not seen inflation. In the seventies the cry was inflation and the gold price (along with real estate and oil) was one of the major beneficiaries.

...MORE: http://www.kitcocasey.com/displayArticle.php?id=294

Shouldn't this be on the Investment Forum ( which in turn should be renamed the "Buy Gold Forum")?

Are you saying there are loads of gold rampers on here?

yes

but i think it should be on here first and then moved.

It's in the right place.

Good post Dr B.

You try.......you do what you can.

If you think the property market is volatile then becoming a gold bug is another thing altogether. Be very careful after such a good run up, even if things are good in the longterm you want to get your timing right. Central banks still hold decent reserves for non-monetary purposes yet they release this in a co-ordinated fashion whenever they want to discredit the market and make their paper money look good.

I'm sure Dr. Bubb would advise not to put in more than you can afford to lose.

Every time I see yet another interminable gold thread, I cannot help but think of Ben Rumsen & Pardner suffering from gold fever in Paint Your Wagon digging for gold under the saloon.



The best things in life are filthy dirty
Hunks of gold, gold, gold,
The best things in life are dirty
The worst thing in life is...
Being content, without a cent
The best things is life are filthy dirty
Hunks of gold, gold, gold, gold
Stinkin', rotten, chunks of
Grimy, slimy, lousy, lovely
Gold.....

A truly great film....

http://www.stlyrics.com/lyrics/paintyourwagon/bestthings.htm

Well, they're not quite as irrational as you Rigsby, you're buying houses!

The tone of this thread is extraordinarily bullish.

Someone posts about gold and the only replies are sceptical. This indicates a large pool of potential buyers yet to be converted.

What will it take? GBP falling back to 1.4? (making gold over 330 GBP/oz). BOE cutting interest rates again? (they have already paused).

The thing is if you get what you want (falling house prices) then you will also get as a matter of routine a devaluation of the GBP.

Now there have been many chances to buy bullion at excellent value over the last year and I would be the first to admit that buying after a run up is much more risky.

BUT WAKE UP PEOPLE. Gordon Brown is looting your savings. The only protection is gold



BAB

The article's from a Kitco site as well, so MRDA (Mandy Rice Davies Applies... "He would say that, wouldn't he").

However although I'd like to play devil's advocate and say gold seems to be getting an unbalanced portrayal here, the world does appear to be heading for an economic correction, just like the UK housing market. At times of economic stress it's never a bad idea to have some money invested in a solid asset which has a very long history as a safe haven, and is always worth *something* no matter what's going on in the world. (I suppose you could say the same about a house, though I'm really not a fan of playing investment games with people's homes).

Gold prices may not go through the roof (I hope they don't need to anyway), but they're not making any more this side of the next local supernova, so it seems like a fairly safe bet in uncertain times for me. Especially if you've been reading all the economy/gold-related threads in recent months.

Sadly my current betting fund stands at £2300, and even if that were to double overnight I wouldn't be retiring anywhere sunny... though maybe next year it'd buy me one of those over-supplied pensioner pads in Spain? :-)

Andrew McP... about to head out to earn another £50 for the betting fund

Dream on dreamers.....

How must that look to a first time visitor? Someone drawn here because they are concerned that they are unable to buy a home...

Buy Gold while you still can....


Let them eat cake.

Bear in mind:
In the UK, gold transactions currently, are VAT free - this is a unique situation, as VAT was in full force just a few years ago.

Remember - this is Gordan Brown's taxation whim we are talking about - if it moves tax it! Gordan Brown under a bit of pressure (as he is now) could simply look at the sales of gold back and the £100 million in revenue towards pumping up housing and in comes the VAT at 17.5% again - a bit of a problem when owning physical!

Are you sure of that? I thought the only reason why Gordon took tax off of gold sales was because the EU told him he had to... in which case he'll have a hard time putting it back.

Totally agree Mutley.

A priced out FTB really needs advice like that. "I can't afford a house - ooo, I better speculate on gold instead !"

The atitude of the goldbugs has become identical to the property bulls on Singing Pig about a year ago. Why not change your names to "PM guru" and be done with it ?

What FTBs need is advice on financial discipline and (house) market timing, IMHO, not tips on the 2:30.

</rant>

I'm a goldbug and even I'm sick of them. Let nature take its course.

I've always hated bloody advertising!

EDIT: Not to say the content isn't interesting. I know DrB was just repeating the irritating title on the paper - so don't shout the messenger.

Durch, you don't ramp and p1ss-take. I can't always follow your logic, mind, but there is something to get your teeth into. Even dedicated share boards tend to frown on naked share ramping.

Anyway, the thread has been moved to its proper place now, so wtf

IT IS MY FAULT...
I chose the wrong title for this thread, and I have paid the price.

People seem to have ignored the strong points in the article, and instead focussed on teh word, Gold. Do you really think that this has no bearing on: the economy, inflation, and property prices?

Can on, let's dive a little deeper into what Mr. Lassonde has to say. If no one else is interested, I hsall do so myself:

(see next panel)

GMSR Interview: Pierre Lassonde
Lassonde is President of Newmont Mining, the world’s largest gold producer,

SOME KEY POINTS:
+ there is nothing in the world that is going to replace the Big Five Kings and Queens as Simmons calls them, the Ghawar, Sanofi, and the other oil fields. And yet demand continues to rise.
(RIGHT. Oil prices will rise until the economy breaks. What will rise with them, and what will break with the economy? I reckon gold will rise, and property will break)

+ hard assets have had two major supercycles in the last hundred years. One was from 1929 – 1934, and the gold price at that time was fixed so the hard asset cycle was shortened because of that... The current bull market in hard assets started in 2001, as per this chart, so we are four years into it. As the last two were 12-14 year bull markets, this tells me we are at the beginning the bull market, not at the end. When you look at the rise in price of gold in the 1970s from $35 to $850 dollars that is more than a 2000% increase. So far in this cycle we are up about 80%.
(A 20x rise would take gold to $5,000)

+ There is no pricing power on anything... The Chinese don’t want to lose market share, so they are cutting their margins to the bone to compete... we expect to see inflation maybe go up to 4 or 5%, but we are not going to see the 15-18% inflation of the 1970s.
(That lower level of inflation will not help wages much, and therefore will not help property much. There will be a shift of spending away from mortgage payments and mayeb rents, towards energy, metals, and maybe food. That is one possibility, at least)

+ There is such overcapacity in everything that there is no good investment anywhere, so people are parking their money in long bonds. We saw the same thing in the 1930s... A huge amount of liquidity that is sloshing around the world in the form of foreign exchange reserves. If you take just the four major Asian central banks (Japan, China, Korea, Taiwan), they have accumulated over two trillion dollars of foreign exchange... And since we don’t have the money to pay for all of our purchases, these kind strangers provide us with the financing to buy their products.
(They believe they are better off giving the mney to Americans, who spend it on their products, rather than giving it to their own people to spend on their products, or putting it into some kind of "hard assets".)

+ /This happened before in the Seventies, when US was spending like crazy/
That money ended up in the French, German and Italian central banks because they were our main trading partners. The president of France, Charles de Gaulle, ...said (in those days the dollar was backed by gold at $35 per ounce) ‘I am going to send you your dollars back, send me the gold.’ Nixon realized ...he would have no gold left in Fort Knox. What did he do in 1971? He closed the gold window, and then gold took off. Today we are not on the gold exchange mechanism, but it will react the same way in private hands.
(The catalyst was France, we ae waiting to see who it will be this time around.)

+ The movie is playing a little differently: we have not seen inflation. In the seventies the cry was inflation and the gold price (along with real estate and oil) was one of the major beneficiaries.

==

THE GOLD PART...
+ Supply/demand fundamentals are really good. Last year total world mine supply fell by 5%. That’s the biggest decrease since 1939. At the same time demand increased 7%, led by a 12-13% increase in demand in China and something like 10-11% in India, and the Middle East has shown similar gains. We have also seen increases in industrial and investment demand. What we see for this year and the next three years is more of the same. We don’t see mine supply worldwide turning up even though the gold price is $425.

GMSR: Except for a handful of companies, gold mining is not a good business at $425 gold. What kind of price is required for this to change?

PL: If you have already spent the capital it is not a bad business at $425. You can do like 7-ish% returns on your existing capital. But if you have to build new mines, $425 is marginal in a lot of cases. The cost of steel is double and if you start to look at the other components that go into building a mine, the prices have gone up by 20 or 30% or more. Your operating costs have also gone up so at $425 gold, you have to have a great mine.

GMSR: And there aren’t many of those around. For the industry, not the exceptions, what does the gold price need to be?

PL: If you want to earn a 10% return on capital in today’s world, everything else being equal, you need $500.

GMSR: Another reason that the number has risen so much is because this slow industry has gotten much slower in recent years. Lead times on projects are much longer and the cost of projects being opposed is also high. The hurdle rate for projects has risen, but could you put some perspective on the other changes the industry has seen?

PL: In the 1980s we saw the introduction of several brand new technologies: heap leaching, autoclaving, roasting. If you look at the percentage of gold produced today from these three technologies I would say they represent close to 30–40%; that’s a guess, but I don’t think I’m too far off.

At Newmont roughly 30% of our gold comes from heap leaching. If you add roasting and autoclaving it is probably another 20%, about 50% overall. Worldwide, let’s say 30% comes from new technology. There were huge gold deposits that could not be mined in the 1950s, 60s, and 70s, and all of a sudden they could be mined.

Another thing that happened in the eighties and nineties is that the world opened up. Back in the eighties you could not go to Africa. Africa was communist and you could not go there. Up to 1993 Peru was a “forget it” country, Shining Path territory. But the winds of change blew over the world and whole continents suddenly opened up to business.

If you look at the amount of discoveries, in the 1990s, every year up to 1998 we had three-to-five new five million ounce discoveries. In the last seven years we have had two: Cortez Hills (Placer Dome) and Alto Chicama (Barrick Gold). I am talking greenfield “new” discoveries. You could argue Kupol is a brownfield discovery; there was already a discovery of about a million ounces. In Ghana we now have sixteen million ounces at Ahafo, but that is a brownfield discovery, as there was already a two million ounce discovery.

What is happening today is very different. One, we have not had any new technologies that have come into our market in 20 years. Two, our world is actually shrinking. There are places today where you either can’t go anymore or mining companies are no longer welcome. If you look at the mineral laws being promulgated in Indonesia, they are not mining friendly. They are raising taxes and royalties in Peru, Chile, pick a country.

GMSR: Like a lot of investors or outside observers, countries seem to be operating on the fallacy that if gold is up 80% over the last four years, gold mining must be a good business.

PL: To continue this thought, Venezuela’s a really difficult place to go these days and so is Colombia, or any of the FSU countries. So from a mining company perspective the world is actually shrinking. On top of that the minute you go into a developing country the NGOs are making life a lot more difficult. Through eco-activism, they generate fear among the local population to create the perception that only they can help to resolve the problems.

GMSR: Newmont has an interest in Gabriel in Romania, which seems a good example of NGOs coming in and imposing their will on local people. There, 85% of the local populace voted in favor of the mayoral candidate who supports the Rosia Montana project, and yet one woman flies in, stirs the pot, and wins the green Nobel prize [Ed., the Goldman Prize] for her work.

PL: That is very true. It takes an awful lot today to be able to develop projects where the NGOs become active. You have to gain the trust of the population; it takes time and you have to have the government backing. If you don’t, you are dead in the water.

GMSR: It seems that you’ve got to be there first. If you can make your impression before they’ve made their impression, you are at least ahead of the game.

PL: In developing countries it’s so easy to create fear because the NGOs are working with a population that generally does not understand what mining is all about. We have seen it in every developing country where we operate. Interestingly enough, in a place like Ghana the NGOs have not had anywhere near the traction that they would have in a place like Honduras or Peru, mostly because they have been mining gold there for 300 years. The people understand mining.

Where you have a full understanding by the population, and where you have governments that are seen as proactive in the enforcement of the law, the population is far more relaxed about mining because they know the government would not allow any bad things to happen. In those places the NGOs have very little, if any, traction.

That is why at the end of the day the best place to find a mine and operate is still the U.S., Canada, and Australia. People in those countries know that government will enforce their standards, and they know they are first world standards. The company can operate, you can permit—it takes time, but you can get your permit—and you have a justice system that works. To my mind, these are still the best places in the world to find and operate mines.

GMSR: Newmont’s problems in Indonesia have been widely publicized. Some serious accusations have been made, but isn’t this really all about the sanctity of contracts?

PL: Yes, in great part. The fact is criminal charges never should have been brought. The contract is very specific about any environmental issues/disputes that have to be resolved, either internally or by third party arbitration. The government never made use of that. Our people never should have been charged because there was never any substantive evidence. Every study that has been done at Buyat Bay, whether by the World Health Organization, the Indonesian Ministry of the Environment, or independent third parties, none of them ever found any pollution. Period.

...
PL: I am very optimistic in terms of reserve increases over time. The exploration effort basically stopped with the Bre-X crisis. It shut down the raising of money by junior companies, and the gold price fell down to $250 in 1999. At that price the world was telling the industry ‘we don’t want any more gold.’

The big companies shut down their exploration departments and we have now had a drought for seven years. Still, in 2004 the junior companies were able to raise $2.3 billion in Toronto alone. It takes a couple of years before they get the people, before they get the land, and they are able to really start putting money in the ground.

I think we will see new discoveries in the five million ounce range over the next 18 months to two years. Most everything that is in the market is stuff that has been around for ten or twenty years already. One reason we’re not seeing more consolidation is because a lot of these properties are quite challenged. They have been around for a long time for a good reason.

GMSR: It would seem that we are also going to see a concentration of the industry where a company like Newmont has some franchise value attached to it. It can persist through all these obstacles, whereas the little guys just can’t begin to stand up to the barriers of entry. Is that a fair conclusion?

PL: The barriers of entry are rising. Capital costs are rising so you need to find a lot more money. Even a small project today, a 3,000 tonne per day project, costs $400 million dollars and that is just the beginning.

If you start to look at projects by the bigger companies you are looking at billions fairly easily. At the end of the day I think our industry will never be as concentrated as the iron ore or copper industries, mostly because 30% of the discoveries are still made by juniors and also because a lot of small mines that the large companies are just not going to buy, but they can be economic for small companies. So I don’t think you’ll ever see the same amount of concentration.

GMSR: It would seem that we’re also not going to see a growth industry for juniors such as we saw in the eighties and nineties.

PL: I do believe that the 30% of discoveries by juniors will still be made. Because of that the juniors will continue to have access to the public markets. They will make discoveries and they will be acquired if they make great discoveries. I don’t think that is going to change very much.


...
GMSR: In terms of fresh product, the gold ETF (exchange traded fund), GLD, came out almost a year ago, and you are now president of the sponsoring World Gold Council. Some people think that the industry has finally made it easy for their product to be purchased. Others seem to think that the industry has created a new product that can be used to place bets against the gold price. GLD was obviously a hugely successful launch, but what are your thoughts on how the product has evolved? Is it doing its job?

PL: In terms of the gold business it is the single most successful new product since the launch of the Kruggerand in 1970. Our view is very simple. If you make it easy to for people to buy a product they will start to look at the whole chain of product.

Some pension fund managers look at gold stocks and they don’t understand the valuations. So they are not going to buy gold stocks because they can’t get themselves to valuations of two times NAV. They don’t understand that gold stocks trade on optionality values. So for them the bullion is a very simple way to get into gold as a hedge on their dollar or other currency positions. God bless them, they would have never bought equity in the first place.

But they are buying bullion, which is good for the industry. So it is a new product, and has a very different attraction than for someone who wants to buy equity. Gold bullion has no leverage, gold goes up 10%, that’s what you get: 10%. You buy a gold equity, gold goes up 10%, the stock will go up 20% if it has two beta, which they do. They are very different products.

What we think we have done is basically enlarged the pool of money that will look at gold as an asset class. If you go back to marketing 101 one of the exercises you will do is this: a McDonald’s will open on a busy corner and it gets 10,000 meal traffic days, and then a Tim Horton’s opens on the next corner, a Subway opens on the third corner, and a KFC on the fourth.

The question is ‘is McDonalds traffic up or down once the four corners are busy?’ The answer, it’s up. Why? Because it has become a food destination corner. People say ‘I don’t know what I am going to have for dinner tonight, let’s go to such and such a corner’ because they have a choice. It is the same with a gold product, the more products you have the more people are going to say ‘I don’t know what I am going to buy but I need an asset diversifier, let me go to this corner and let me pick something.’ In creating GLD, that is what we have done.

GMSR: The one criticism that I see most often is that the gold price might run up $20 or $30 dollars but the amount of gold held does not seem to change. How do you explain this?

PL: One of the structural issues of the GLD, because of the way it was created under SEC rules, GLD is what they call a perpetual offering, which means you can’t promote the product. Because of that the brokers cannot solicit their clients, it has to come from the clients. That is a real issue.

We have a million brokers out there that could sell the product, but they can’t solicit. We are looking at what can we do to change that. Our goal is to make the population aware, the big players aware, and I think you will see demand come into the market. On the launch we were able to go around and do that and we were very successful, but it takes a continuing effort. We are working with the listing broker and the SEC as well because they are ones who regulate the product.

GMSR:Asian demand has helped the gold price in recent years, but are the Asians buying this product?

PL: We are planning to list the product in Hong Kong and there is also a plan to list it in continental Europe. The idea is to have it on enough exchanges that it will trade 24 hours a day/seven days a week. It takes time but I think the product will continue to be very successful. In six months GLD took down 250 tonnes.

GMSR: You’re known for talking four digit gold prices and that is something that seems to throw a lot of people, who seem to think that $1000+ gold sounds like a big number. Given the amount of monetary creation since gold hit $850 25 years ago, $1000 gold seems to me more like chump change.

DOW / GOLD RATIO:
PL: If you go back to that chart I talked to you about, the Dow Jones/gold price chart, one of the points I touch on is that every hard asset bull market has ended with a low, low, single digit ratio. In 1980, gold was 800 and the Dow was 800. In 1932 the Dow touched 37 and the gold price was $35 in 1934, there was a bit of a disconnect in terms of prices. It ended up at less than two to one.

I do believe that when you look at the financial imbalance in the US system, a 6% current account of GDP deficit, you look at the amount of debt being created in the private and public sectors, to unwind all of these excesses will take time. I don’t think it is going to happen in the next one or two years; it is going to take a lot longer than that.

If you look at a low single digit number, I don’t think the Dow is going to crash through 1,000. In 1966-67 the Dow lost about 40% of its value going from 1,000 to about 600. In the 30s it lost 90% of its value but then you had deflation, outright deflation like we’ve seen in Japan the last 15 years. I do not believe we are going to see outright deflation in the United States, I think it is going to be more like a muddle through, so I still think the Dow is going to be 6000 to 8000 +/- something.

When you look at the amount of money that has been created, what I see is a gold price that will have three zeros after the first number. But I don’t know what that first number is going to be. Yes, over $1,000. Is it going to be in the next year or two, I don’t think so, I think it is going to be a 5-8 bull market that we have in front of us. So the place to be over the next 5-8 years is hard assets. That’s what it is, gold, oil.

CONCLUSION
GMSR: As your partner Seymour is fond of saying, ‘If you want to make money, find a secular trend and ride it.’

PL: This is a major, major secular trend that only happens once every two generations. You get on it and just stay with it. That’s how you are going to really make money.
GMSR: Pierre, thanks for helping my readers in that cause

Dr Bubb, thanks a lot for this thread.

A lot of people here haven't seen the level of work, compassion and sincerity in your posts on this forum over the last year, and longer.

I for one know you aren't a ramper, but passionate in your strongly held theories.

I also think that when long time respected members like mutley etc ask us to move to the investment forum, perhaps we should consider this seriously.

Moderators, was CGNAO asked to leave because of his constant gold ramping, but entrtaining, posts??

I always click on 'view new posts' anyway and watch all the forums simultaneously..........doesn't everyone??

Sorry I don't post that much, my keyboard is a real dog.

Best regards to all.

C.P.

I spoke with cgnao by PM and I think he left because his post was moved by the moderators. He felt he was only trying to help people take advantage of an opportunity. Also I think he is upset that his leaving post was moved off-topic within a second of being posted.

I hope he'll be back.

Hi Bubb, I was one of the moaners, but I like the new title

I personally just got annoyed by the string of threads "No gold ? Ha Ha Ha", "Look after the millions" etc. which is just the sort of stuff I come to hpc to avoid.

I did just look at the title, and probably overreacted. Over the last few days I have become quite a fan of the investment forum, and much is fascinating.

Anyway, I appreciate your posts, please keep up the good work - I withdraw my ramping comments.

It is early in the gold game, according to Lassonde.
An ideal buying opportunity may be on the retest to $450/55, if/when it comes.

But I want to discuss the non-gold points in this article, and I will start a new thread,
"Property Dreamers, part two" to do that

Does anyone have CgNao's email? I would like to invite him back

Cgnao responded to a PM I sent him after he left. Unless he has deregistered, he might be reachable that way.

Can the webmaster help?

Also I've not noticed any posts from Riser recently.

I fear a Cappucino effect is brewing with gold prices especially if the Tetley phenomonen goes unchecked. This could lead us all into a Coffee morning scenario. Need I say more?

Just make sure it's Gold Blend...