Gold shares will eventually track bullion higher: Barrick's...

Gold shares will eventually track bullion higher: Barrick's Regent
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By: Matthew Hill
8th September 2011
Updated 6 hours ago
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TORONTO (miningweekly.com) ? As gold continues to beat consensus forecasts, analysts will have to change their assumptions, and equities in producers will then likely climb, Barrick Gold CEO Aaron Regent said on Wednesday.

The biggest factor holding back the share prices of bullion miners was the belief that gold would retreat in the future, but analysts had got it horribly wrong over the past couple of years, he commented.

?As price levels are sustained, assumptions are changed,? Regent said in an address to investors broadcast over the internet, pointing out that the consensus gold price estimate had risen by 56% since 2009.

The gold price, meanwhile, has gained nearly 80% since the start of 2009, to trade at around $1 815/oz on Wednesday.

Regent went on to show that the forward curve of the yellow metal showed that it should increase in price, not decrease, as analysts expected.

?If you take $1 950/oz, which is based on the forward curve price to 2015, and you compare it to the consensus long-term price of $1 200/oz, there?s a $750/oz difference in that price assumption,? he noted.

?That basically means our earnings are going to be different, depending which assumption you use, by about $4-billion-plus after tax.?

Barrick, the world's biggest gold miner, could post pre-tax earnings of $11-billion this year if current metal prices hold, according to a subsequent speech by CFO Jamie Sokalsky.

Ultimately, share prices of gold producers will pick up, Regent said.

?If gold remains at these levels or increases, it?s likely a recalibration will take place, and we do think that gold equities will respond. The question is, will gold prices stay at these levels? And we think that there?s a strong case that they will,? he said.

The reasons he gave included emerging market growth and burgeoning demand for the precious metal in India and China, which now account for half of global gold consumption, the fact that central banks have again become net purchasers of bullion, and that miners are struggling to lift production.

?We, as an industry, are working hard to stand still,? Regent commented.

Another major reason for him to believe prices would continue to rise was the devaluation of currencies in the developed world, and investors seeking to protect their wealth against inflation in emerging economies.