‘Decade of free money’ is why gold prices have risen: Mark Bristow

Article content

The recent rise of gold to a record US$2,135 per ounce has led to much discussion of the reasons behind the metal’s positive run during the past few years, from central banks investing more in bullion to expectations of rate cuts next year.

Mark Bristow, chief executive of Barrick Gold Corp., the world’s second-largest gold producer, expects the demand for gold to continue increasing, so he’s been looking to expand the company’s reserves. But, according to him, a “decade of free money” is a key reason why the price of gold has continued to rise over the past five years.

Article content

Article content

In an interview with the Financial Post, Bristow talks about the future of gold, his views on a potential soft landing and how miners will be affected by the price of gold.

FP: From maintaining a healthy range to reaching an all-time high this week, what’s your take on the way the price of gold has behaved in the recent past?

Mark Bristow: We saw a poor mandatory policy way back when inflation first reared its head, but soon after that, the feds sort of got a grip on things. But they chased the interest rate really high quickly, and that was on the back of more than a decade of quantitative easing and fiscally liberal policies to be polite — fiscally reckless policy in my mind, a decade of free money. What we are measuring now is the impact of that devaluation.

Gold also measures the global economic perception and the perception of risk: when last did we have risks like this? Maybe in the late ’80s and towards the end of the Cold War. We have more conflicts across the globe than we have seen since then and so that’s another driver.

You have the de-dollarization of central-bank balance sheets and that is quite an important component, because you have seen the purchase of gold by central banks. You have about 40 countries going into elections in 2024, and some of the early signs suggest it’s not what people were expecting. And then, of course, the gazillion-dollar question: everyone’s talking about a soft landing.

Article content

Although people want to wish there’s a soft landing, we underestimate the damage that’s been done to western economies. If I look back to when I started out in my career, we didn’t have any of the big western economies with a debt of more than one time the GDP (gross domestic product). And now it’s common.

If you look back, I think there’s been about nine tightening cycles since the ’70s and only two have been soft landings, and even then they were questionable. So, the statistics are against people. There’s no fiscal discipline in the United States. People have gotten used to free money. It’s going to be hard to tighten things up.

Overall, I feel gold has much more upside than downside risk looking forward.

FP: Are we facing setbacks as a result of a decade of low interest rates? Is that what you mean by free money?

MB: More than a decade. I would say it was post-2008. And then we got into COVID-19 and that was even freer (money). Very low or zero interest rates. When you have free money, you fuel inflation because people live above their means. And then, of course, people were sent home during COVID and sent a cheque. Really, the world became used to this.

Article content

When you print money, it’s like printing shares in a company. If you print shares in a company and you don’t add more value, then the value of the shares goes down. And so when you print piles of fresh money and your economy doesn’t grow, the value of that money becomes risky.

FP: When do you see the price of gold going down then?

 MB: U.S. Federal Reserve monetary policy has helped to get a grip on things. But what is not disciplined is the fiscal policy — government policies and that’s how they spend money and how they raise debt. And when you look at the $33 trillion of debt in the U.S., at these sorts of interest rates, the cost of servicing those debts is going to be more than the GDP soon enough. Everyone seems to just dismiss it and I don’t think it’s that easy to dismiss.

I am a great believer in the U.S economy, but, wow, I have seen some very undisciplined approaches from both the Republicans and the Democrats on how they managed their fiscal policy.

Why do you buy gold? You buy it to preserve your wealth, because you don’t trust (the economy), and that’s also why there’s signs of crypto getting some revival, although I don’t believe in that. But if you look at 2023, gold has outperformed all the other asset classes.

Article content

To add to that, the gold mining industry hasn’t replaced the gold we have mined. We have used the higher gold prices to unlock lower-grade reserves, but in the past 2.5 years, with the flat rate and then inflation, we have seen that margin in the mining industry shrink. And that’s why we need to find more gold.

FP: Do you think the supply of gold will be an issue when it comes to the price?

MB: Of course. The de-dollarization of balance sheets is real. When you are an emerging market, why would you want to have all your balance sheet exposed to the US dollar, when you see the U.S. cancels people’s money? That’s been one of the big drivers of purchasing (gold), and people are really talking about an alternate global reserve currency. I think we are still far away from that, but, nevertheless, the point is there is a shift away from (the U.S. dollar) being the only currency. And it’s definitely not looked at as the unique go-to asset for balance-sheet protection.

FP: How do you think the current gold price and the gold price of the near future will play out for miners?

MB: That’s been the biggest disappointment, and it’s not only gold, but all the metals. Share prices have not responded as one would have expected on the back of rising commodity prices and particularly gold.

Article content

The point here is that gold company shares have always traded at a premium to the gold price because the gold industry traditionally had inventory. In other words, it was exploring and it had more gold in its portfolio than it was mining at that moment. A lot of that inventory has been eroded, and now you have had this period of flat gold prices, which, by the way, is a very good gold price, but the margin has been eroded by inflation.

My biggest single focus in Barrick is building that runway of projects and making sure we replace the reserves we mine at the same quality or better quality of our current reserves rather than using the higher gold price to survive.

• Email: [email protected]

Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.com to your bookmarks and sign up for our newsletters here.

Article content