Glimmer of hope for gold

Gold is likely to be the best performing metal on a relative basis during 1993, delegates to the recent Western Gold Show here were told. David Williamson, an independent metals industry consultant, warned that unless an economic upswing is evident by the middle of next year, base metal prices will likely be little changed from the current depressed levels.

“But should the U.S. economy show stronger growth than anticipated and should demand from the fastest growing area in the world, namely China, continue to expand, a modest improvement in gold prices could be expected in 1993,” Willamson said. “Certainly the downside appears limited.” But delegates were also told that the outlook for gold prices is no longer tied just to supply and demand fundamentals. “Mine supply is down and demand is surging,” said Leanne Baker, vice-president of metals and mining with Salomon Brothers. “If gold were copper, it would be easy to be bullish.” Baker and other analysts noted that gold prices are being adversely affected by investment and hoarding fundamentals, particularly selling by central banks (including Canada’s), distress sales, and forward sales by producers. According to the Gold Institute, the U.S. Treasury Gold Reserve was not an active participant and did not engage in gold loans, swaps or other financial arrangements involving gold. However, delegates were informed that the recent currency crisis in Europe did prompt some nations to reduce gold reserves in order to increase foreign exchange reserves, a practice likened to “selling old furniture to buy new.”

Because of the subdued outlook for metal prices, analysts urged the mining equity investor to avoid companies with high debt levels or those requiring high capital expenditure for marginal projects.

New opportunities in Latin America were featured prominently, and investors were told to keep a close eye on companies active in Venezuela, Guyana and Suriname. These countries contain a geologically prospective belt of rocks that is largely unexplored and favorably compared to those hosting world-class mines in Eastern Canada and Africa.

But it was diamonds, rather than gold, that provided the most sparkle to this year’s gold show. Delegates heard (many for the first time) about the diamond discovery in Canada’s Northwest Territories from speakers, including newsletter editor Bob Bishop, and diamond expert Christopher Jennings.