Often forgotten, or in some quarters deliberately ignored, gold performed extraordinarily well in the disinflationary aftermath of the 2007-2008 financial crisis appreciating from $650 per ounce in January, 2007 to over $1800 in August, 2011. The consumer price index, on the other hand, was bumping along either side of zero and had the potential to evolve to a full deflationary spiral. Inflation, in short, was not an issue. Though gold is generally considered an historically-proven inflation hedge, it is also an historically-proven disinflation hedge as the post 2007-2008 example demonstrates. Investors from 2007 on were interested in gold for its safe-haven characteristics and as a refuge from a potential full-out financial system breakdown. One of the great advantages of being a gold owner is that it is an investment for all seasons protecting its owners against inflation, disinflation, deflation or hyperinflation.
Note .... The gold bull market in the 1970s and 1980s happened even as the Fed tested record-high interest rates. The yield on the 30-year Treasury bond rallied sharply during the late 1970s, eventually topping 15% in 1981. Gold rallied from about $100 per ounce in 1976 to over $850 per ounce in 1980.
Goldcorp Inc.’s CEO is not surprised by the steep decline in his company’s stock price on the heels of its third-quarter earnings.
“It was a depressed quarter. It was expected a such, and obviously, the market was disappointed with the quarterly results,” Goldcorp () CEO David Garofalo told BNN Bloomberg in an interview on Thursday. “It is a loss, but it’s set us up for a very strong fourth quarter.”
The miner’s 12-cents-per-share third-quarter loss was more than the 10-cent loss expected by Bloomberg analysts. The company’s shares plunged 18.40 per cent - or $2.50 – to close Thursday trading at $11.09.
Garofalo pinned the losses on lower output from the company’s Peñasquito operation in Mexico.
“In the third quarter we actually accelerated the construction of our Pyrite Leach project at Peñasquito,” Garofalo told BNN Bloomberg. “We actually completed that a quarter ahead of schedule and started the commission earlier. As a result we decided to feed low-grade material through the mill, which we signaled to the market.”
However, Garofalo thinks Goldcorp is well-positioned to combat an overall decline in gold reserves without needing to look at mergers and acquisitions, like some of its major competitors.
“Over the last six years or so, we’ve actually seen 50 per cent decline in reserves across the entire industry. That’s inevitably going to drive M&A, and we saw that more recently with Barrick [Gold] and Randgold getting together,” he said. “Even with that consolidation, with that merger: They’re making themselves into the biggest gold player in the sector, but that still only represents about six-to-seven per cent of global mine production.”
“We’ve actually been investing ahead of the curve over the last couple of years in brown-field expansions of our existing operations and we’ve populated our pipeline with some very attractive new deposits that will see us actually grow production and grow value over the next decade,” Garofalo added.
“So, we’re well positioned to really go against the tide that we’re seeing in the rest of the sector.”
Still, Garofalo thinks the sector is bound to shrink.
“It’s still very much a scattered and segregated universe,” he said. “There are too many players in the sector. We’re likely to see more consolidation to deal with that decline in reserves and production that the industry is facing.”
Note .... The gold bull market in the 1970s and 1980s happened even as the Fed tested record-high interest rates. The yield on the 30-year Treasury bond rallied sharply during the late 1970s, eventually topping 15% in 1981. Gold rallied from about $100 per ounce in 1976 to over $850 per ounce in 1980.
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