Producers budget $75 million to promote gold

The World Gold Council, the Geneva-based association that promotes the yellow metal on behalf of member companies, couldn’t have picked a better week to hold its first institutional investment forum in Toronto.

On June 10, the day before WGC Vice-President Jim Hildebrandt and four consultants spoke to pension fund managers at Toronto’s Harbour Castle Westin Hotel, gold shot up US$7 to US$371.25 per oz., its highest level since Jan. 29.

Sparked by some heavy buying in the Middle East, the jump in price raised the question as to whether this was just a “temporary blip,” or the start of a new bull market for gold. As gold fell to US$370.70 within 24 hours of the increase, the consensus at the 1-day forum was that investors won’t see a sustained rally until supply levels drop off next year.

However, as investment demand for gold coins has been in steep decline in western markets since 1986, the brief uptick was welcome news for an organization which recently named Placer Dome (TSE) Chairman Fraser Fell as its new chairman.

Formed in 1987 to represent the interests of 82 gold producers in 14 countries, including the U.S., Brazil and Canada, the WGC has a $75-million budget with which to promote investment in gold. According to Hildebrandt, about 70% of that amount is being spent this year to push the sale of gold jewelry, a major factor affecting demand for the precious metal.

However, as indicated by the list of speakers at the Toronto forum, the WGC is putting more emphasis on promoting gold as an investment among both institutional and private investors. Guests included Keith Ambachtsheer, president, KPA Advisory Services, a Toronto pension fund consultant, and Laurence Siegel, managing director of Chicago investment research firm Ibbotson Associates.

As Hildebrandt explained, the WGC is attempting to make the case for gold as an asset that can diminish the volatility of a portfolio without prejudicing the rate of return. According to Hildebrandt, gold, while volatile in the short term, has been a remarkably constant store of value over the long run and thus will protect one’s investments against sudden or large rises in inflation.

He said the WGC is targeting pension funds because their assets are large ($200 billion in Canada and about 10 times that amount in the U.S.), their investment focus long term, and their equity orientation appropriate for the inclusion of gold.

As well as hosting four investment forums this year, the WGC is giving presentations to analysts and directing calls to pension funds. “We think that getting information out is an appropriate activity in a down market,” said Hildebrandt. Gold Production Costs (Weighted average costs in US dollars per ounce) 1989 1990 ____________________________________________________________________ __________ Australia TS20,40,52 Cash Costs 245 239 Total Costs 288 280 Brazil Cash Costs 229 238 Total Costs 324 312 Canada Cash Costs 246 248 Total Costs 320 313 Philippines Cash Costs 259 265 Total Costs 352 348 South Africa Cash Costs 277 308 Total Costs 326 353 United States Cash Costs 222 237 Total Costs 288 305 Other Cash Costs 208 199 Total Costs 285 280 Western World Cash Costs 252 265 Total Costs 310 323 ____________________________________________________________________ __________ From Gold 1991, Gold Fields Mineral Services Ltd.