Exclusive: Record gold price a product of global risks, Barrick CEO Bristow says

The price of gold hit new records this week as concerns mounted about slowing growth in China, Europe and the United States even as stock markets rebounded and bond yields fell.

Gold hit US$2,147.55 on Wednesday within a day of Chinese leaders describing its 5% growth forecast for the world’s second-largest economy this year as “ambitious” when past years surpassed 7%. It’s contending with a property sector bubble that has rattled domestic investment and a shrinking population unable to fill its workforce.

In Europe, officials cut their economic outlook to 0.9% growth this year from 1.3% predicted three months ago because last year’s post-pandemic rebound stagnated. Falling household purchasing power, collapsing external demand, higher interest rates and smaller tax breaks combined, the European Commission said.

“There are multiple things but one of them is global risks, and I’m talking about financial risks,” Barrick Gold (TSX: ABX; NYSE: GOLD) CEO Mark Bristow said in an exclusive interview with The Northern Miner on Tuesday. “The Chinese Communist Party came out with a 5% growth forecast, which is not good for anyone, and a messaging that that they’re pivoting away from a construction-driven economy.”

In most developed economies, lower interest rates for nearly a decade and a half after the 2007-8 financial crisis allowed borrowers to substantially increase debt, also endangering mid-size lenders, Bristow noted during the chat at Barrick’s Toronto headquarters.

Free money

“The Western world, particularly the North American Western world, gets very quickly used to things and they got very used to free money,” he said. “And they built businesses that are not sustainable when you have to make something to pay back or service your interest. The property market also is again stretched, though not the industrial property market.”

Wars in Ukraine, Israel, and hot spots around the Middle East such as Iran, Yemen and the Red Sea, increasing trade protectionism and resource nationalism are all exacerbating damages to global supply chains started by the pandemic, the CEO says.

“You analyze the reaction, particularly the political reaction, and it doesn’t fit because the world has become so reliant on each other,” Bristow said. “But there’s this de-globalization, so we see it because of costs, particularly in the logistics supply chain, right. And Barrick has operations in all continents.”

Still, most economies dodged a major recession that had been predicted after interest rates rose to contain 40-year high inflation spawned by massive government spending during the Covid-19 pandemic.

The S&P 500 touched a record 5,149.25 and Nasdaq also hit a new high on Monday before a sell off. But they had regained most their losses by early afternoon Wednesday with the help from big tech stocks. Most U.S. and German bond yields were declining.

Crypto climb

Bitcoin, the largest crypto-currency by market value, also hit a new record Tuesday of US$69, 208.79, suggesting there’s a wider lack of support for traditional currencies because of weaker economic data and some concerns over equity markets, BMO Capital Markets said in a note on Wednesday.

“Adjusted for inflation, the 1980’s gold price spike was still higher, but the recent push above $2,000 per oz. has proven more resilient, also being supported, in our view, by central bank purchases and Chinese households shifting investments into gold as a disinflation hedge,” commodities analyst Colin Hamilton said.

Despite the record gold price, gold equities still trade widely divergent from the metal. The S&P/TSX gold index is about 25% below its 52-week high.

While 2024 guidance has been disappointing for some precious metal companies, which is not unusual, Canaccord Genuity’s North American Mining analyst Carey MacRury said Friday, the year-end earnings season so far shows costs are expected to be largely flat as a group. That should translate into meaningful margin expansion, MacRury said.