Barrick Retiring Chairman Munk Says Einstein Could Not Predict Gold Prices
Comment of the Day

April 24 2014

Commentary by David Fuller

Barrick Retiring Chairman Munk Says Einstein Could Not Predict Gold Prices

Here is the opening from this candid, reflective article from Bloomberg:

Barrick Gold Corp. (ABX) ChairmanPeter Munk says he finds it impossible to accurately predict the value of the precious metal being produced every day by the mining company he founded more than three decades ago.

“I really have no ability to forecast gold prices,” Munk said yesterday in an interview at Bloomberg’s headquarters in New York. “I have been in the business for 30 years, and it occupies my mind day and night.”

The world’s largest gold producer wrote down $11.5 billion in value last year and saw its profit margins squeezed as prices for the precious metal plunged into a bear market. The 2013 slump ended a 12-year bull run that swelled profits for mining companies.

Munk is in good company: Federal Reserve Chairman Janet Yellen and her predecessor Ben S. Bernanke have both said it’s hard to quantify what makes gold tick. The metal’s rebound this year defied bearish predictions from Goldman Sachs Group Inc. and Societe Generale SA.

“It’s tough because fundamentals don’t rule the market,” Jeff Sica, who helps oversee more than $1 billion of assets as president of Sica Wealth Management in Morristown, New Jersey, said in a telephone interview. “On one hand, you have algorithmic models and momentum traders ruling prices, and on the other you have those driven by sentiments.”

David Fuller's view

Most of the comments we see on gold are from a western perspective but people all over the world have an interest in the yellow metal.  Their ancestors have been interested in this unique store of value for centuries, not least in a fiat currency world which we still inhabit.  However, in the short term gold is voting machine, in competition with everything else that people might be tempted to own. 

The majority of analysts who are not wedded to gold are talking it down.  This is a contrary indicator and the opposite of what we were hearing four years ago.  They might be able to push it a little lower but downside targets always overshoot as bear markets enter their latter stages.

In addition to the gold charts in the lead section above, I would keep an eye on the S&P/TSX Global Gold Index.  Gold shares remain unloved but 2013’s selling was climactic and the subsequent trading has base formation characteristics.  If it can rally back towards 220 in the next several months, a potentially significant recovery will beckon.  

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