by Tim Wood
1 October 2002
DENVER -- This year's Denver Gold Forum opening luncheon was a bull spectacular quite unlike previous years. It was just surprising that salmon was served for the main course instead of bear meat.
Hosted by Toronto junior IAMGOLD [IAG, IMG.TO], it was an opportunity to promote the company's total onslaught approach to gold - it's not good enough to mine it, you have to bank it as the truest cash and pay your shareholders with it.
Shareholders can't receive nuggets through the mail, which is why IAMGOLD has selected GoldMoney to supply a digital form of the metal for its distributions.
GoldMoney chairman, Clifford Press, extolled the virtue of goldgrams (each 'gg' is worth about $10) as an asset with no liability or sovereign overlord, is non-repudiable and unburdened by traditional clearing functions. That said the chink in the armor is the fact that the reason for owning physical gold is possession. That suggests GoldMoney dividends may be liquidated speedily and en masse, but that remains to be proven.
Tocqueville Asset Management's John Hathaway was on hand to remind everyone why liquidation, especially into dollars, might be foolish.
Reprising many of his previous commentaries, Hathaway said: 'Having suppressed the normal functioning of capital markets over the last two decades, the Federal Reserve and economic policy makers have set the stage for a protracted period of sub-par investment returns.' Consequently, he believes there will be an inflection point involving a mass emotional and psychological shift toward gold; principally because of dissatisfaction with existing returns and a fear for the future.
The problem, surely, is not a shortage of regulation and oversight, but a surplus of dishonesty at every level.
Hathaway's topline indicator remains the spread between AAA and BAA corporate bonds. The gap is steady above 12 points and although it has eased in recent weeks, it is at its widest in a decade, but short of the early 1980s record of 28 points. He has no doubt that gold's current twitchiness above $320 is a prelude to a repeat of the coincident 1980 peak in the gold price and quality spreads.
Hathaway is also watching the share prices of the 'money center banks', alias JP Morgan, the trade weighted dollar, the housing GSEs, mortgage insurer share prices and the slope of the yield curve. All told, he's looking for shudders along the spine of a zombie political economy.
That four digit gold price? He thinks we'll see it when the Dow Jones Industrial average and price of gold cross over once more. The Dow at 5,000 isn't likely to trigger the golden stampede (after all we're going to see Nasdaq wend its way below 1,000 points), but 1,500 points on the big industrial board may yet do the trick. Ouch; unless you've allocated some of your portfolio to gold.
Graham Birch wrapped up the luncheon with just that advice. He is the brain behind Merrill Lynch Investment Manager's world beating gold fund, which is a great advertisement for the firm's advice to allocate 5% of a portfolio to gold.
So far there has not been much uptake on the idea, but when it happens it should be significant considering MLIM assets under management are worth 6 times the combined value of the world's public gold companies.
A hedge fund manager I spoke to on the sidelines of the event agreed that acceptance of gold in the 'traditional' community was slow, but warned not to be misled by the pedestrian pace. He said he had seen a vastly increased level of interest from sectors that would not previously have touched gold with a barge pole. 'This takes time to work though the committees, but it is happening,' was his encouragement.
Birch reinforced that with a graph showing his cumulative money flow which turned up strongly late last year and has powered past the May peak even though the gold price is only just working its way back up to those levels. Most importantly, the money coming in is 'sticking', rather than flying out at every hint of a retracement.
Birch also worries about the institutional obstacles for gold, primarily in terms of entrenched investment cultures that have to be overturned. But he sees it taking place, just as the hedge fund manager does, and the bottom line is an incipient increase in gold's investment relevance.
Gold Fields [GFI] and World Gold Council chairman Chris Thompson wrapped things up with a rebuke for the industry's stewardship of the metal. He's determined to reverse the rot, starting with a WGC spring cleaning that will see some offices close and poorly performing programs will be slashed.
He had no additional information on how the WGC intends to stimulate widespread investment buying, but assured the audience that the organisation was working toward a 'complete solution'.