One person who just knew this would happen was Pierre Lassonde, chairman of Toronto-based royalty company Franco-Nevada Corp. When I interviewed Lassonde in August 2003 – when gold hit a lofty $375 an ounce – he told me gold had no where to go but up. Way, way up.
Is sure wish I would have listened more carefully. Gold has nearly tripled since then. How many other investment classes have tripled since 2003?
A bet on gold – to some extent – is a bet that world’s the crazy financial schemes will eventually come to an end. Increasingly, central banks seem to be taking that bet, with India buying 200 metric tons of gold this week. How much higher can it go from here?
I thought I’d check in with Lassonde to see what he had to say now.
Click here to read my column.
And here’s the column I wrote about Lassonde in 2003:
Newmont chief sees gold future
31 August 2003
Newmont Mining president Pierre Lassonde forks over a $1 million bill.
Visually, it’s as impressive as any U.S. currency. It’s even meticulously printed on similar paper.
On the back is a small inscription: “This certificate is backed and secured only by confidence in the American Dream.”
The line on the novelty note comes off as a joke. But Nixon uncoupled the dollar from gold in 1971, so maybe it isn’t so funny.
Lassonde smiles. We spoke last week after a weakening dollar put gold at a six-month high.
Gold appears to be rebounding from a 20-year bear market that began with a war on inflation in the 1980s and ended with a war on terrorism and a loose fiscal policy that is now flooding the world with dollars.
Gold was $35 an ounce in 1970, peaked at $850 in 1980 and fell from there to nearly $250 in 1999. It’s still bouncing around, but last week it was on the upswing at $375.
Newmont is rising with the tide, its stock up more than 200 percent since October 2000.
Lassonde, who has 60 percent of his net worth in gold-related investments, doesn’t believe his luck ends here. As the author of ‘Gold Book, The Complete Investment Guide to Precious Metals,’ he can argue why gold might one day climb to $6,500 an ounce.
His arguments, though bold, are compelling – even bearing in mind that he has every incentive to preach a bullish theology and that many financial experts believe average investors should put no more than 5 percent of their portfolio in gold.
‘I call gold the anti-dollar,’ Lassonde said. ‘When the dollar is strong and acts as the reserve currency that it is, there is no use for gold. But when the dollar is weak because of fiscal and monetary policy, then the ultimate reserve currency is gold.’
So with a rising U.S. trade deficit and a federal budget deficit that is financed with a steady flow of foreign cash, gold is behaving more like a currency than a commodity in Lassonde’s view.
‘The United States is sucking up 70 percent of the world’s savings to live in the manner it’s accustomed to,’ Lassonde said ‘This can’t go on forever.’
To be sure, the global politics of the American lifestyle, the intricacies of central bank policies, currency fluctuations and geopolitical events are impossible to predict. Also, a strengthening economy has the potential to turn the tide against gold.
But if you put these factors aside and consider gold as just a commodity, Lassonde has some more basic supply-and-demand arguments, too.
The 20-year bear market in gold has weeded out marginal gold producers and significantly curbed exploration and production.
‘If gold was $1,000 an ounce, it still takes four to seven years to open a mine,’ he said.
Then, on the demand side, there is India and China.
India, home to a billion people, is increasingly affluent, particularly as U.S. companies add jobs there instead of here. So Indians are buying more gold.
Then there’s China, where after years of communist controls, the government is deregulating gold, allowing gold companies to have initial public stock offerings, creating a gold exchange and even allowing its citizens to buy gold at market rates.
That’s 1.3 billion people who now are permitted to buy gold at market rates as they participate in their fast-growing economy.
‘China by itself could become 40 percent of the entire gold market,’ Lassonde said. ‘That is the most important thing that’s happened to the gold market in the last five years, and yet very few people have picked up on it.’
A golden opportunity? Only time will tell, but it’s an interesting thesis. Meanwhile, know that the lure of gold has made many millionaires and many paupers.
Al Lewis’ column appears Sundays. He can be reached at firstname.lastname@example.org.