Editorial Don’t forget gold

For those in the gold mining business, however, those price swings are nothing but a headache. What they want is a rock solid price they feel they can depend on. The price swings upward are all right, but it’s murder when the price goes south.

It could be that the speculators and the miners might both get their preference. Slowly but surely, the price of gold has been gaining strength recently. From here it looks like a bottom price for the metal has been reached. It may not be all up from here, but the downside looks remarkably safe.

Excitement on the stock markets this year has pretty well been confined to some extraordinary base metal plays — and deservedly so, considering the prices for metals today. But in the midst of that excitement, and with gold plays few and far between, it’s all too easy to forget about gold.

But there are some exciting gold plays developing. It’s just that investors have been slow to react. Ontario’s Mishibishu area is a prime example. The first mine in the area has officially opened and there are two or three other projects in that area that look as though they could be mines as well.

There are others, too. Gold exploration in Newfoundland has reached an all-time high and British Columbia is seeing some of the high-grade projects in the northeast area of the province shaping up nicely. Work is also continuing in northern Saskatchewan. The next big market play could come from any one of those areas or several others. One thing is for certain, wherever it comes from it will probably take the market by surprise.

There are lots of reasons why investors have steered clear of gold issues, and they’ve been enumerated many times: the ’87 market crash scared investors off mining stocks, flow-through financing modifications make junior mining issues less attractive than they were before the crash, the U.S. dollar is too strong and, of course, gold prices are too low.

But those reasons are gradually losing their credibility. The market crash is fading into memory, flow-through is still around even if it isn’t quite the spur to investment that the pre-crash system was, and the U.S. dollar has appeared to have peaked. Most important, however, is the price of gold.

It’s not what it was in the past two years, $446(US) per oz on average in 1987 and $437 in 1988, but the price is starting to move in the right direction again — up. Since the beginning of 1989 until quite recently, the gold price has seen a steady decline. But it never fell below $350 and in fact, seemed to form a good base in the $360-$365 range. Now it has climbed back, slowly but surely, to the mid-$370s.

That’s a pretty good price considering that Canadian producers’ cash operating costs average just over $210 an ounce.

What’s even more bullish for gold is an apparent supply shortage. Not too long ago the fear was that with some of the huge projects coming on stream in Nevada, Papua New Guinea and Australia, would create an oversupply. But Consolidated Goldfields, the UK-based mining company that sponsors an authoritative review of the gold mining industry each year, says even though worldwide gold production was up by about 10% in 1988, demand grew at an even greater pace. For example: “Jewelry manufacture enjoyed a year of spectacular growth, largely because of the rise in real incomes, especially in Asian countries,” says the Goldfields report. Central bank buying, particularly from the Taiwanese government, also helped.

Gold has a nasty habit of making fools of us all. Nevertheless, there’s still a lot of interest in the currency of last resort. It has a history of coming to life just when everyone believed it had taken its last gasp. The bottom line is, don’t sell gold short. It may surprise you sooner than you think.

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