Gold Industry Officials Warn Of Depression, Expect Major Economies To Boost Reserves

Bailout packages will likely lead to mass inflation, dollar crash

Steve Watson
Infowars.net
Monday, March 2, 2009

Senior Officials within the Gold Industry have warned that an economic depression followed by a dollar crash is a real possibility, as they announced moves by major economies to raise their central banks' gold reserve holdings.

Marcus Grubb, managing-director of investment research and marketing at the World Gold Council, has warned that the strength of the U.S. dollar is likely to be short-lived and has said that major developing economies such as India and China are looking toward diminishing their dollar holdings.

"What we are seeing is a reassessment of the risk associated with the high exposure to the dollar. Obviously at the moment you see the dollar appreciating 25 to 30 percent against most currencies around the world, but a lot of that is obviously driven by liquidity." Grubb said.

"That is a temporary phenomenon, if you look at the size of the bailout packages in North America the fact that the U.S. economy may well enter a depression ... there is a real fear of that," he said. "In that scenario I wonder what will happen to the U.S. dollar."

Grubb also says he expects to see moves by middle eastern countries to shore up their economies by buying gold.

"It would certainly be (a concern) to all regions pegged on the dollar ... because they have run surpluses, and the Western countries have been in deficits, they have huge accumulation of dollar reserves," Grubb said.

"In that scenario you could see an increased demand for gold then."

Grubb's analysis dovetails with that of other prominent economists and investors such as such as Eric Sprott, Johann Santer, Jim Rogers, Robin Griffiths, Edward Hands and Jurg Kiener to name but a few, who are now predicting that global central banks' insistence on printing their way out of economic turmoil is setting the stage for a hyperinflationary holocaust, a knock-on effect of which will be gold's acceleration towards $2,000, as demand for precious metals outstrips supply.

This past weekend, legendary investor Warren Buffett joined the chorus as he warned that the multibillion-dollar bailouts handed out by the US Government will bring on an “onslaught of inflation".

“Economic medicine that was previously meted out by the cupful has recently been dispensed by the barrel,” Mr Buffett said. “These once unthinkable dosages will almost certainly bring on unwelcome after-effects. Their precise nature is anyone's guess, though one likely consequence is an onslaught of inflation.”

Meanwhile other prominent economists such as former chief credit officer at Fannie Mae Edward J. Pinto, philanthropist George Soros, the IMF’s top economist Olivier Blanchard, and Professor Peter Morici, a former chief economist at the U.S. International Trade Commission, have all concluded that the U.S. is entering a full scale depression.

http://www.infowars.net/articles/march2009/020309Gold.htm

Barrick chairman speculates China will dump dollars for gold

Submitted by cpowell on Thu, 2009-01-29 19:44.

Section: Daily Dispatches

Gold LIkely to Hit New Highs on Dollar Fear: Barrick

By Barbara Lewis
Reuters
Thursday, January 29, 2009

http://www.reuters.com/article/worldEconomicNews/idUSLT65165320090129

DAVOS, Switzerland -- Gold is likely to hit new record highs, spurred by serious concern about the U.S. currency and doubt about the state of the world economy, the chairman of Barrick Gold Corp. said Thursday.

There was even a possibility, although not a probability, central banks, including China's, might start to switch from dollar holdings to gold, which could cause the metal's price to treble or more.

From a gold producers' perspective, one negative is that the cost of bringing on production has remained high, even as other raw materials, including base metals and energy, have slumped.

"Gold is at record levels in every currency except dollars. Even within dollar terms it is within a few percentage points of an all-time high at a time when all the other major commodities are falling," Peter Munk told Reuters at the World Economic Forum meeting in Davos.

"Whether it's the currency effect or a reaction to a feeling of uncertainty, gold in my opinion is more likely to go up than down," the chairman and founder of the world's largest gold mining company said.

Spot gold was at $902.80/904.80 at 1817 GMT. It hit a record high of $1,030.80 an ounce in March last year.

Munk stressed he was merely weighing the odds.

"It would be stupid to assume commodities prices can only go one way," he said, adding physical demand for gold jewellery was not high during the economic downturn.

Gold has been one of the best-performing assets of late, rising in value by nearly 17 percent since late October.

Investors have bought heavily into physical bullion in the form of coins and bars and physically-backed assets such as exchange-traded funds as a safe store of value at a time of increased volatility in other asset prices.

Munk said downward pressure on the dollar, partly because of massive U.S. spending to stimulate the economy, would increase gold's attractions as an investment further.

Gold usually moves in the opposite direction to the dollar, as it is often bought as a hedge against weakness in the U.S. currency.

"My personal feeling is that with the rescue packages calling for trillions, not billions ... the value of the (U.S.) currency has to go down," said Munk.

His company did not hedge its output for now -- meaning it does not use derivatives to insure against a fall in price -- and relied instead on the price climbing. In the past its successful hedging allowed it to make the acquisitions that helped to make it the world's biggest gold miner.

"It would be dumb to hedge," Munk said of the current climate.

His bullishness was underscored by the possibility central banks, including that of major dollar asset-holder China, might start buying gold.

"If they decide to diversify, we assume into gold, then we start to talk about a trebling or quadrupling of the gold price. It could be followed by Russia or Kuwait.

"I don't think it's likely, but it's more likely. I would not have said it two years ago ... I'm not a gold bug ... but it's more likely than it was two years ago."

A strong price climate has meant ongoing investment in bringing on new gold, Munk said.

"In every other mining area, people are cancelling mines."

But declines in other commodities have yet to have a major impact on cost.

"Marginally yes, but substantially no. For some reason cash costs are tending to continue to increase," he said, when asked whether investment costs were falling.

"Energy costs have gone down. It does help, but labour costs are consistently increasing."

The one way to reduce production costs is to invest in efficient new mines, Munk said, citing two major new projects in Nevada and the Dominican Republic and a smaller one in Tanzania.

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Iran’s switch good news for gold bulls?

Posted by Ambrose Evans-Pritchard on 10 Jun 2008 at 13:18

Good news for long-suffering gold bugs. Iran is switching a chunk of its $80bn reserves into bullion.

Gold seasonal chart: click to enlarge

Mohsen Talaie, the deputy foreign minister in charge of economic affairs, said Tehran was pulling its money out of euro instruments (presumably Bunds, BTps, EIB bonds, etc) to avoid sanctions over its nuclear weapons programme.

“Upon the decision of the government’s task force a segment of Iran’s foreign exchange assets will be converted into real assets such as gold and stocks,” he told Iran’s Etemad-e Melli newspaper.

Europe is planning to freeze the assets of Iran’s biggest bank Melli. A draft communique for the EU-US summit on Thursday confirms that Europe is ready to join the crack down on Ahmadinejad.

It all goes to prove the gold bug axiom that nations - like people - will invariably turn to bullion as the ultimate store of value when all is threatened.

Iran’s demarche did not seem to help gold prices today. It slid $9.5 to $883 an ounce, off almost $150 since the giddy heights of February, despite the surge in oil prices. But then the gold angle to this news has not been given any prominence.

But then too, there are a lot of headwinds. As you can see from this 26-year season chart, gold tends to have a rough patch from April to early July. It then rockets in September and October (ceteris paribus).

The Iran news may have hurt the euro, which dived in morning trading. The concerted drive by the Fed, the US Treasury, and even President Bush to talk up the dollar before the G8 meeting in Japan may have spooked the dollar shorts. Hank Paulson used the word “intervention” for the first time. It would be dangerous to take on the combined might of the world’s fortress banks.

With oil at the current price, Iran is building up reserves fast. If it parks a 20pc or so of the build-up in bullion could be enough to swing the gold market (tiny by comparison with energy).

But then you never know. These regimes talk with forked tongue.

When I asked Barrick Gold’s Peter Munk in Davos whether it was significant that Vladimir Putin had ordered his central bank to switch 10pc of Russia’s reserves into gold, he just laughed. “That must mean Putin wants to sell gold,” he said.

Nothing is ever what it seems.

http://blogs.telegraph.co.uk/business/ambrosevanspritchard/june2008/goldbulls.htm