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All Signs Point To Higher Gold Prices, Says Expert

David Lin, 03/13/2019

We are going to have a little more inflation … and twin deficits, high debt-to-GDP.  

Current monetary policies have made the precious metals a more attractive investment option, said Alain Corbani, head of commodities at Finance SA.

“My bet, and so far it has been the safest, is to follow what the Fed is saying. So, basically they are saying ‘we are not going to raise rates anymore,’ they are saying that they don’t see a threat on the inflation front. So, the bottom line is real rates will stay where they are. We are going to have a little more inflation … and twin deficits, high debt-to-GDP. I’ll remind you [that these] are the basic ingredients for gold to perform. [It also] means lower U.S. currency, and higher gold price,” Corbani told Kitco News at the Prospectors & Developers Association of Canada convention in Toronto.

Corbani noted that the environment is “much brighter” today than even three years ago, when the current gold bull cycle started.

On the recent mega mergers activities, Corbani said that the mining industry does not need more consolidation in order for companies to be profitable.

“I think it’s disruptive, and I think it’s destructive, I don’t think that it’s value-driven,” he said.

Corbani’s comments came as Barrick Gold Corp. and Newmont Mining Corp. signed an implementation agreement to create a joint venture in Nevada on Monday, following news that Newmont officially rejected Barrick’s bid to acquire the company.

Barrick’s hostile takeover attempt of Newmont has stirred a divide of opinions in the mining industry, with some analysts commenting that more consolidation in the sector would lead to added shareholder value as administrative overhead decreases, while others, like Corbani, said that mergers are of little significance to investors.

“I don’t care. I don’t know why people want to see more M&A. I don’t,” he said. “Back in 2013, that was the start of a major restructuring of the industry. Did we need M&A to cut costs by $200 an ounce? No. The message was very simple and clear back then. It was, focus on profitability. We don’t need M&A to focus on profitability.”

However, Corbani added that some mergers made financial sense, such as Barrick and Randgold which had complementary assets, and Newmont and Goldcorp, which were just “merging to be more profitable.”

 
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