Newmont, Agnico see 2011 gold at $1,500-$1,600/oz

By Carole Vaporean
NEW YORK | Mon Mar 21, 2011 3:33pm EDT
REUTERS

(Reuters) - U.S. gold miner Newmont Mining Corp (NEM.N) and Canada's Agnico-Eagle Mines (AEM.TO) said on Monday they expect increasing demand for gold as a monetary asset to send the price up to levels of $1,500 to $1,600 an ounce in the next 12 months.

Speaking in exclusive interviews at the Reuters Global Mining and Steel Summit, the companies' chief executives cited gold's use as a proxy currency, central bank gold purchases, rising demand from Chinese and Indian buyers, and an affinity for gold as an investment in developed economies as chief drivers leading the metal to $1,750 or even $2,000 an ounce in the next few years.

"If you had said 10 years ago that gold was going to be at $2,000, everyone would have agreed that the world would be in a total shambles and there would be chaos in the streets," said Agnico-Eagle Chief Executive Sean Boyd.

"You could see gold at $2,000 and you could see the world function the way it's functioning right now. And, I don't think that's a stretch," he added.

Unless governments take steps to stave off growing inflationary trends, Richard O'Brien, president and CEO of Newmont, the world's second largest gold miner, said gold's value as a protection against inflation could lead it to $1,750 an ounce or higher in several years, possibly by 2012.

"It just depends on how well governments respond to inflation, on whether there are counteracting activities that governments take to forestall the rise in inflation," he said.

O'Brien said, he thinks the pace of inflation is already picking up with governments increasing their currency balances over the last few years and higher food and fuel prices. It will only increase as construction of infrastructure picks up.

Historically, he said, governments have not been able to control inflation, so gold will be used as protection.

For 2011, the CEO of the Denver-based miner said he thinks volatility spawned by global currency movements and political turmoil in the Middle East will mean gold will trade in a range of $1,350 to $1,500 an ounce.

Agnico's Boyd said a gold price at $1,600 an ounce in the next 12 months would "not be a stretch," given its demand as a monetary asset, its desirability as an investment in developed countries, and jewelry purchases in China and India.

The higher gold price would mean silver could surge to $40 to $50 an ounce, he said, "And I don't think that's wild."

"We saw for the first time (in recent history) net central bank buying last year. I think that's going to continue."

On Monday, spot gold was higher around $1,427 an ounce, slightly off the record high of $1,444.40 set March 7.

Despite record gold prices motivating some miners to expand their capacity, O'Brien said the limited life of existing mines, as well as lack of accessible new sites and the extended time it takes a new discovery to go into production, would assure that new supply will have little impact on price gains.

Both chief executives said they do not hedge any top-line assets like gold, silver or copper. They added, however, that they do hedge some input costs, like oil and the Canadian dollar in the case of Agnico-Eagle.

Newmont sometimes uses hedging to lock in energy costs, or hedges the Australian dollar and other currencies in countries where it operates.

(Additional reporting by Frank Tang in New York; editing by Rob Wilson)

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