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Newmont
Forecasts Gold to Rise Above $1,000 on Asian Demand
By Miriam Steffens
Bloomberg News Service
Sunday, November 27, 2005
SYDNEY -- Newmont Mining Corp., the world's largest producer of gold, says
the price of the precious metal may rise to more than$1,000 an ounce in the
next five to seven years as demand growth driven by Asia outstrips global
supply.
The gold market "is hot and it is going to get hotter," Denver-basedNewmont's
President Pierre Lassonde said in an interview on Australian Broadcasting
Corp. television today. "By early next year you are going to see $525 and
down the road even a lot higher than that."
Gold for immediate delivery touched $497.02 on Nov. 25, the highest intraday
price since December 1987, as Japanese investors bought bullion to hedge
against inflation and jewelers in Asia and Europe stocked up. Lassonde's
prediction surpasses a Merrill Lynch & Co. forecast in July that gold may
rise to $725 by 2010 because of rising demand from China.
"When any of these markets get momentum behind them, you tend to find some
pretty outrageous calls," said Mark Pervan, head of resources research at
Daiwa Securities SMBC Australia in Melbourne. "There's going to be a lot of
gold calls made in this environment; it's similar to the oil market about
six months ago when people" were saying oil may reach $100 a barrel, he
said.
Gold may top a record $873 during the next three years because the U.S. will
be unable to check inflation caused by rapid growth in China and India,
William Gary, a publisher of newsletters with subscribers that include hedge
fund Tudor Investment Corp., forecast last month.
Some investors buy gold to hedge against accelerating inflation. Gold
futures surged to $873 an ounce in 1980, when U.S. consumer prices rose more
than 12 percent from the previous year. Gold last climbed above $500 an
ounce on Dec. 11, 1987.
"Everybody thinks inflation is going to stay at 2 percent. I don't believe
it," said Lassonde. "There has been way too much money printing in the world
for that to happen."
Inflation, excluding food and energy, will probably rise 2.4 percent by the
fourth quarter next year from this quarter, up from a 2.1 percent gain a
year earlier, a survey by the National Association for Business Economics
found.
Newmont said Oct. 26 third-quarter profit fell 2.3 percent to $126 million
as output dropped 6.8 percent, eroding the benefit of rising gold demand and
prices.
Worldwide gold production last year had the largest decline in 39 years,
Lassonde said. Demand in India, the world largest consumer, rose 47 percent
last fiscal year, and 14 percent in China, the world's fastest growing
economy, he said.
The decline in output will continue "for at least another couple of years
simply because the industry didn't put money back into the ground when the
gold price was very low," Lassonde said. "On the other side demand is just
surging everywhere. It is driven mostly by Asia, China, and India."
The price of gold may rise above $500 in the "very near future," Barrick
Gold Corp. Chief Executive Gregory Wilkins said in an interview in Toronto
Nov. 18. Still, Australia & New Zealand Banking Group Ltd. analyst Craig
Ferguson said in an Nov. 22 report that gold may fall as low as $455 in the
next three months.
Gold has rallied from a 20-year low of $253.20 an ounce in 1999 partly
because 15 central banks in Europe, including Germany, agreed to limit their
annual bullion sales to 400 tons through 2004. The banks, under a second
agreement that began last year, increased the annual limit to 500 tons.
Central banks, mainly in the U.S. and Europe, hold almost a fifth of the
world's gold as a reserve asset.
Lassonde's forecast "is an ambitious target considering that central banks
hold a lot of gold and at $1,000 it looks very attractive to sell," said
Daiwa's Pervan.
In 2004, central banks sold 475 tons of gold, contributing 14 percent to
global production, which included mine output and sales of scrap bullion,
according to the World Gold Council.
Lassonde said he was undecided if Newmont should make a takeover bid
for Placer Dome Inc., Canada's second-largest gold producer. Placer is
fending off a $8.93 billion hostile takeover bid from Barrick, the world's
third-largest gold miner, and said last week it's seeking alternative
transactions.
"It would be fair to say that we have to at least think about it butwhether
or not we are going to do something is far from evident," he said. Still,
"the suite of assets is not entirely complimentary to what we have at
Newmont."
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