MINER DETAILS — Bank of Canada outsells Barrick

Before the 1987 market crash, predictions that gold would exceed US$1,000 per oz. were thrown about with ease. Remember the Aden sisters, and the lineups to buy gold at US$800? These days, though, it appears the number of goldbugs waiting for the next bull market has dwindled to a core group of doom-and-gloomers preparing for the collapse of western civilization.

Investors are more astute, too. By now most have learned that as soon as the gold price climbs, producers will trip over one another to push it back by forward selling. If the government doesn’t beat them to it, that is. The Bank of Canada was North America’s largest gold seller in 1991, with sales reaching about 1.8 million oz. This easily surpasses production of American Barrick Resources or any major with mines only in this continent. The federal government holds gold in its “dollar defence” fund of foreign exchange reserves, and the sales support the bank’s policy of reducing the share of reserves held in gold. The yellow metal now represents about 25% of reserves, which also include foreign currencies and bonds.

The Bank of Canada wasn’t the only institution on the sell side. Other countries were involved in gold sales; some to buy arms, others to pare debt or to rebuild economies throttled by socialist ideology.

Gold prices are no longer seen as being exclusively tied to political instability, the inflation rate, or the rate of increases in production and jewelry fabrication.

If only traditional factors were relevant, there would be reasons for optimism. After all, one-third of the producing industry is estimated to be unprofitable at current prices. Exploration is declining, so is the number of new mines. Inflation and consumer spending may be near bottom, and political stability is far from being a reality in South Africa, Eastern Europe and other hotspots.

In its Gold 1992 report, Gold Fields Mineral Services says the price outlook for the yellow metal has been “complicated considerably” by 60,500 tons of above-ground stocks of bullion mostly held by central banks, plus large quantities of coins, which in theory could add to future supply. It will be interesting to see if price increases will continue to be rebuffed by the accelerated supply of producers (forward sales) or sales by financial or government institutions. When this pattern is broken, the gold market might get interesting again.