Barrick’s Munk Says Einstein Couldn’t Predict Gold Prices

Apr 24, 2014 2:46 pm ET

(Updates prices in sixth paragraph.)

April 24 (Bloomberg) -- Barrick Gold Corp. Chairman Peter Munk says he finds it impossible to accurately predict the value of the precious metal being produced every day by the mining company he founded more than three decades ago.

“I really have no ability to forecast gold prices,” Munk said yesterday in an interview at Bloomberg’s headquarters in New York. “I have been in the business for 30 years, and it occupies my mind day and night.”

The world’s largest gold producer wrote down $11.5 billion in value last year and saw its profit margins squeezed as prices for the precious metal plunged into a bear market. The 2013 slump ended a 12-year bull run that swelled profits for mining companies.

Munk is in good company: Federal Reserve Chairman Janet Yellen and her predecessor Ben S. Bernanke have both said it’s hard to quantify what makes gold tick. The metal’s rebound this year defied bearish predictions from Goldman Sachs Group Inc. and Societe Generale SA.

“It’s tough because fundamentals don’t rule the market,” Jeff Sica, who helps oversee more than $1 billion of assets as president of Sica Wealth Management in Morristown, New Jersey, said in a telephone interview. “On one hand, you have algorithmic models and momentum traders ruling prices, and on the other you have those driven by sentiments.”

The precious metal is down 33 percent since touching an all-time high of $1,923.70 an ounce in September 2011. Prices plunged 28 percent last year, the biggest slump since 1981, after people lost faith in bullion as a store of value as equities surged and inflation remained low. Futures in New York settled at $1,290.60 on the Comex.

Einstein’s Abilities

“I don’t care if you are Einstein,” Munk said. “It’s impossible to forecast for a week from now and a year from now.”

Gold fell last year because investors saw a reduced need for “disaster insurance,” Bernanke said in July.

“Nobody really understands gold prices,” the former Fed chairman said. “And I don’t pretend to really understand them either.”

Munk, who is set to retire next week, said spinning off assets as part of a proposed merger with Newmont Mining Corp. would help reduce risk. Investors have punished mining companies as prices tumbled, sending the benchmark Philadelphia Gold & Silver Index down 15 percent in the past 12 months.

Gold’s plunge in 2013 erased more than $74 billion in value from exchange-traded funds backed by the metal. Prices have climbed this year, touching a six-month high on March 17, partly as an unusually cold winter stymied the U.S. economy and as tension escalated in Ukraine.

Goldman Outlook

Michael Haigh, the head of commodities research at SocGen, and Goldman’s Jeffrey Currie, who both correctly predicted the 2013 bullion rout, are sticking with predictions that gold will resume its decline this year. Prices will touch $1,050 in 12 months, Currie said in am April 13 report.

Billionaire John Paulson, who had been betting that bullion would rally as a hedge against inflation, told clients in November that he personally wouldn’t invest more money in his gold fund, according to a person familiar with the matter.

Paulson started his foray into gold in early 2009. His firm, Paulson & Co., is the largest holder of SPDR Gold Trust, the biggest ETF backed by the metal.

“I don’t think anybody has a very good model of what makes gold prices go up or down,” Yellen said at a November hearing on her nomination to succeed Bernanke. “It is an asset that people want to hold when they’re very fearful about potential financial market catastrophe or economic troubles.”