 GMSR Alert #349 - September 19, 2005
GMSR Interview: Pierre
Lassonde
Bob Bishop
Sept 21, 2005
[Editor's note:
I have no idea why we've gone for over 4 yrs without posting
any of your work, Bob. Anyhow, Welcome to the editorial fold
at 321gold. It is fitting that your first piece is the Pierre
Lassonde interview... strictly twixt me and thee, Pierre Lassonde
is very high in the 'Gorgeous' category of my 'Coolest Men In
The Mining Business' list] -Barb
Pierre Lassonde is President
of Newmont Mining, the world's largest gold producer, a role
he assumed in 2002 following the merger of Newmont, Normandy
Mining, and Franco-Nevada. Franco was founded in 1982 by Lassonde
and his partner, Seymour Schulich, and the three-way merger they
helped craft was a direct response to the hedging posture of
AngloGold, which had bid for Normandy, a company in which Franco
had a large investment. While Schulich remains an active director
and spends much of his time on Newmont Capital business, Lassonde
is Newmont's day-to-day operator, the public point man, and widely
acknowledged as the gold industry's foremost spokesman.
An engineer by training,
Lassonde began his career as a cost engineer at Bechtel, and
later was a Sr. Planning Analyst with Rio Algom. In 1980 he started
managing money and was a highly successful fund manager, running
the mining assets in Beutel Goodman's Dynamic Fund, making that
fund the top performing North American gold fund in 1987 and
again in 1989. Pierre and I have known each other about 20 years
and have traveled together several times, including a three-week
trip to China in 1992 (our Gang of Five also included now Goldcorp
CEO Ian Telfer, analyst Terry Ortslan, and mining executive J.C.
Potvin). As several of the stocks followed in these pages also
found their way into Franco-Nevada's investment portfolio-most
notably Aber Diamonds and Diamond Fields (Franco purchased a
royalty on the latter's Voisey's Bay project)-Pierre and I have
always had plenty to talk about. The following conversation took
place in Seattle, just over three weeks ago, two days before
hurricane Katrina struck.
GMSR: The last time we did an interview was July of
1991, with the gold price at $367 and oil at roughly $22/barrel.
When we spent some time together about 18 months ago you were
passing around a Matt Simmons study projecting much higher oil
prices, $80-$100, at a time when the oil price was about $37/barrel.
We seem to be closing in on those targets-what kind of challenges
does this pose for Newmont, and where does oil go from here?
 LASSONDE: Matt Simmons's book (Twilight
in the Desert: The Coming Saudi Oil Shock and the World Economy)
is a seminal work on oil and energy prices, certainly for the
next ten years. By going over all of the papers presented at
the Society of Petroleum Geologists, he has shown that the Saudi
oil fields are about to pass their peak. Since 1950, over 90%
of Saudi production has come from only five fields. The lesson
is that if you go back to Hubbert's Peak for the U.S., which
was predicted and did occur in 1972, 33 years later the U.S.
has not run out of oil, but it is producing only one million
barrels/day-20% of the five million barrels that were being produced
in 1972.
If you look at the Saudis,
they're producing about nine to ten million barrels/day. The
lesson is that once the peak has passed, production begins to
fall by 2-3% per year. In the case of Saudi Arabia it could be
a lot faster. The long and the short of it is that there is nothing
in the world that is going to replace the Big Five Kings and
Queens as Simmons calls them, the Ghawar, Sanofi, and the other
oil fields. And yet demand continues to rise. It's a bit like
the mining business: it takes about 8-10 years to find and bring
on new production. The reaction time between high oil prices
and the economy adjusting, new fuel requirements, energy efficient
cars being designed and built, it's also about 8-10 years.
A year and a half ago we took
the view that oil prices would go well past $60 and that they
were going to stay there for ten years, and we asked ourselves
how we can insulate Newmont from these high prices. In all of
our operations we burn three million barrels a year, which represents
about 20% of our production costs. The way we elected to hedge
was to purchase 7% of a Canadian oil trust, Canadian Oil Sands,
which owns 35% of Syncrude. At the time we made the purchase
the reserves in the ground were being valued at $26/barrel. We
did that in the summer of '04 and today the stock is $125. Our
$200 million investment is worth about $635 million. At $50/barrel
oil next year, we anticipate that the dividend would be about
$10/share; at $65/barrel, we think it would pay about $14/share.
We expect that the dividends on this investment will essentially
cover all of the increase in the oil price that we've seen, providing
us with a hedge for the next 50 years, because this reserve will
last without having to drill another hole. To make a long story
short, we've taken very aggressive action to hedge our long-term
operations against the adverse cost impacts of rising oil prices.
GMSR: Oil is the most obvious example of the Commodity
SuperCycle, or what is sometimes referred to as the Longer and
Stronger outlook on commodities. You've long been a huge proponent
of investors looking to the 1970s for a precedent for what we're
seeing today. Amidst a backdrop of many trying to call a top
on the major trend of our time, what are you telling people today
about where we stand in the current cycle?
 PL: In the 1999 Franco-Nevada annual report
we published a chart of the Dow Jones Industrial Average divided
by the gold price. That represents the performance of paper asset
versus hard assets over time, that there are times to own paper
assets and there are times to own hard assets. It is very, very
telling because hard assets have had two major supercycles in
the last hundred years. One was from 1929 - 1934, and the gold
price at that time was fixed so the hard asset cycle was shortened
because of that. If you look at silver, which was free floating
in those days, I think what you would have found is that the
supercycle probably started in 1924-25 and ended about 1937-38.
If you look at the Homestake share price, it peaked in 1937.
So you would have had about a 13-14 year bull market in hard
assets. The next bull market in hard assets was from 1966 - 1980,
14 years as well. The rest of it is all a bull market in paper
assets. The current bull market in hard assets started in 2001,
as per this chart, so we are four years into it. As the last
two were 12-14 year bull markets, this tells me we are at the
beginning the bull market, not at the end. When you look at the
rise in price of gold in the 1970s from $35 to $850 dollars that
is more than a 2000% increase. So far in this cycle we are up
about 80%. There are a lot of similarities, oil went up 5 times
in the 1970's, from $2 to about $12 in 1973 and then finally
it went up to $50 by 1980. This time we have gone from $12 to
$60 so we have had the first five, but I think we are going to
see more than that. The biggest difference and where the music
sheet is a little different is on the inflation rate. I think
this cycle is more akin to the 1930s from an inflation standpoint.
In fact what we are seeing in some parts of the economy is deflation.
GMSR: Because China is exporting it?
PL: Yes, because we are seeing Asia not only exporting
deflation in goods but also in services. There is no pricing
power on anything. So, you see the oil price increases fivefold
and people say 'inflation's gotta come, inflation's gotta come,'
but what we are seeing is the producers of goods and services
absorbing a lot of the price increase, because they have no pricing
power. The Chinese don't want to lose market share, so they are
cutting their margins to the bone to compete with the Koreans,
Indians, Vietnamese and other emerging Asian economies. So we
expect to see inflation maybe go up to 4 or 5%, but we are not
going to see the 15-18% inflation of the 1970s.
GMSR: It's pretty clear that the debt pyramid can't
stand those rates anyway.
PL: That's right. On the other side of the coin,
deflation is lurking right around the corner and that is why
long bonds are so low. There is such overcapacity in everything
that there is no good investment anywhere, so people are parking
their money in long bonds. We saw the same thing in the 1930s.
Those are the major differences.
GMSR: Too much money with no place to go is not a
good rationale for bull markets, but it does seem to be a key
part of the story. Where is this all going?
PL: If you look at what the U.S. has done with its
current account deficit, over the last six years it has created
a huge amount of liquidity that is sloshing around the world
in the form of foreign exchange reserves. If you take just the
four major Asian central banks (Japan, China, Korea, Taiwan),
they have accumulated over two trillion dollars of foreign exchange.
These U.S. dollar balances are way beyond their requirements.
That is money the U.S. sent over to these countries that the
banks have had to buy back, but to do so they have printed their
own currency and that money is now back into the market system,
just sloshing around the world. It was the same phenomena that
caused the boom in the 1970s and the 1920s. There's just too
much liquidity.
GMSR: Monetary inflation, and only selective price
inflation?
PL: It's more like asset inflation versus general
inflation. It shows up first in the current account deficit,
as we, the American people, can't seem to buy enough of the cheap,
wonderful products Asia has to offer. And since we don't have
the money to pay for all of our purchases, these kind strangers
provide us with the financing to buy their products. If you go
back to the 1970s, for the first time in about 100 years the
U.S. had a current account deficit. It was two billion dollars
for the whole year, the whole year! Today it is about $60 billion
a month, $2 billion a day. That money ended up in the French,
German and Italian central banks because they were our main trading
partners. The president of France, Charles de Gaulle, looked
at his foreign exchange and he could see that the dollar was
basically going to depreciate because the U.S. was printing too
much money. He is the one who said (in those days the dollar
was backed by gold at $35 per ounce) 'I am going to send you
your dollars back, send me the gold.' Nixon realized in about
two nanoseconds that if he was to oblige, he would have no gold
left in Fort Knox. What did he do in 1971? He closed the gold
window, and then gold took off. Today we are not on the gold
exchange mechanism, but it will react the same way in private
hands.
GMSR: Why do you think there is such a delayed response?
It seems that the handwriting on the wall is awfully clear, and
that this will end badly and to the benefit of gold. That said,
why is taking so long for what seems like an obvious reality
to sink in?
PL: As humans, we are all prisoners of our past.
For the last 10 years, we kept dreaming. I think the movie is
playing a little differently now because one, we have not seen
inflation. In the seventies the cry was inflation  and the
gold price (along with real estate and oil) was one of the major
beneficiaries. Again, today we are more akin to the 1930s. Because
oil has risen so much and 30% of our costs as an industry is
energy related, we have been hit pretty hard. I think that the
analysts look at that and say even though the gold price is up
$35, your costs are up $35 so why should your stock price be
higher? It has really held back the stocks. They are not wrong,
our costs have gone up. We see it, you know three million barrels
a year of diesel, diesel goes up $0.50 that's $150 million, that's
real.
GMSR: The lack of earnings makes it quite obvious
the industry is cost challenged in the extreme, as you say, there
is no pricing power. In August of last year you said that $350
gold was necessary to sustain the industry. Obviously a lot has
changed since that time. You see it with all the input costs,
and my end of the business too, it seems that everything is slowed
down, obstructed, or faced with a legal, environment, or legal
challenge.
PL: That's a good point. Supply/demand fundamentals
are really good. Last year total world mine supply fell by 5%.
That's the biggest decrease since 1939. At the same time demand
increased 7%, led by a 12-13% increase in demand in China and
something like 10-11% in India, and the Middle East has shown
similar gains. We have also seen increases in industrial and
investment demand. What we see for this year and the next three
years is more of the same. We don't see mine supply worldwide
turning up even though the gold price is $425.
GMSR: Except for a handful of companies, gold mining
is not a good business at $425 gold. What kind of price is required
for this to change?
PL: If you have already spent the capital it is
not a bad business at $425. You can do like 7-ish% returns on
your existing capital. But if you have to build new mines, $425
is marginal in a lot of cases. The cost of steel is double and
if you start to look at the other components that go into building
a mine, the prices have gone up by 20 or 30% or more. Your operating
costs have also gone up so at $425 gold, you have to have a great
mine.
GMSR: And there aren't many of those around. For the
industry, not the exceptions, what does the gold price need to
be?
PL: If you want to earn a 10% return on capital
in today's world, everything else being equal, you need $500.
GMSR: Another reason that the number has risen so
much is because this slow industry has gotten much slower in
recent years. Lead times on projects are much longer and the
cost of projects being opposed is also high. The hurdle rate
for projects has risen, but could you put some perspective on
the other changes the industry has seen?
PL: In the 1980s we saw the introduction of several
brand new technologies: heap leaching, autoclaving,  roasting. If you look at the percentage of gold
produced today from these three technologies I would say they
represent close to 30-40%; that's a guess, but I don't think
I'm too far off. At Newmont roughly 30% of our gold comes from
heap leaching. If you add roasting and autoclaving it is probably
another 20%, about 50% overall. Worldwide, let's say 30% comes
from new technology. There were huge gold deposits that could
not be mined in the 1950s, 60s, and 70s, and all of a sudden
they could be mined.
Another thing that happened
in the eighties and nineties is that the world opened up. Back
in the eighties you could not go to Africa. Africa was communist
and you could not go there. Up to 1993 Peru was a "forget
it" country, Shining Path territory. But the winds of change
blew over the world and whole continents suddenly opened up to
business. If you look at the amount of discoveries, in the 1990s,
every year up to 1998 we had three-to-five new five million ounce
discoveries. In the last seven years we have had two: Cortez
Hills (Placer Dome) and Alto Chicama (Barrick Gold). I am talking
greenfield "new" discoveries. You could argue Kupol
is a brownfield discovery; there was already a discovery of about
a million ounces. In Ghana we now have sixteen million ounces
at Ahafo, but that is a brownfield discovery, as there
was already a two million ounce discovery.
What is happening today is
very different. One, we have not had any new technologies that
have come into our market in 20 years. Two, our world is actually
shrinking. There are places today where you either can't go anymore
or mining companies are no longer welcome. If you look at the
mineral laws being promulgated in Indonesia, they are not mining
friendly. They are raising taxes and royalties in Peru, Chile,
pick a country.
GMSR: Like a lot of investors or outside observers,
countries seem to be operating on the fallacy that if gold is
up 80% over the last four years, gold mining must be a good business.
PL: To continue this thought, Venezuela's a really
difficult place to go these days and so is Colombia, or any of
the FSU countries. So from a mining company perspective the world
is actually shrinking. On top of that the minute you go into
a developing country the NGOs are making life a lot more difficult.
Through eco-activism, they generate fear among the local population
to create the perception that only they can help to resolve the
problems.
GMSR: Newmont has an interest in Gabriel in Romania,
which seems a good example of NGOs coming in and imposing their
will on local people. There, 85% of the local populace voted
in favor of the mayoral candidate who supports the Rosia Montana
project, and yet one woman flies in, stirs the pot, and wins
the green Nobel prize [Ed., the Goldman Prize] for her work.
PL: That is very true. It takes an awful lot today
to be able to develop projects where the NGOs become active.
You have to gain the trust of the population; it takes time and
you have to have the government backing. If you don't, you are
dead in the water.
GMSR: It seems that you've got to be there first.
If you can make your impression before they've made their impression,
you are at least ahead of the game.
PL: In developing countries it's so easy to create
fear because the NGOs are working with a population that generally
does not understand what mining is all about. We have seen it
in every developing country where we operate. Interestingly enough,
in a place like Ghana the NGOs have not had anywhere near the
traction that  they would have in
a place like Honduras or Peru, mostly because they have been
mining gold there for 300 years. The people understand mining.
Where you have a full understanding by the population, and where
you have governments that are seen as proactive in the enforcement
of the law, the population is far more relaxed about mining because
they know the government would not allow any bad things to happen.
In those places the NGOs have very little, if any, traction.
That is why at the end of the day the best place to find a mine
and operate is still the U.S., Canada, and Australia. People
in those countries know that government will enforce their standards,
and they know they are first world standards. The company can
operate, you can permit-it takes time, but you can get your permit-and
you have a justice system that works. To my mind, these are still
the best places in the world to find and operate mines.
GMSR: Newmont's problems in Indonesia have been widely
publicized. Some serious accusations have been made, but isn't
this really all about the sanctity of contracts?
PL: Yes, in great part. The fact is criminal charges
never should have been brought. The contract is very specific
about any environmental issues/disputes that have to be resolved,
either internally or by third party arbitration. The government
never made use of that. Our people never should have been charged
because there was never any substantive evidence. Every study
that has been done at Buyat Bay, whether by the World
Health Organization, the Indonesian Ministry of the Environment,
or independent third parties, none of them ever found any pollution.
Period.
GMSR: In terms of that particular issue and the trial,
what is happening right now? Am I correct in understanding that
it is being challenged for being procedurally lacking?
PL: The government presented their charge two weeks
ago. We submitted what I believe are called exceptions. What
we are saying is that there should have never been a trial in
the first place, because there is no evidence to support any
criminal charges.
GMSR: Being the biggest gold miner also means that
Newmont has the biggest target on its back. This has obviously
hurt the stock in the last twelve months. Some investors believe
that if Newmont is going to be a magnet for problems, they will
look elsewhere in the market. How do you go about convincing
investors that Newmont is still the go-to gold stock?
PL: Being Newmont today is like trying to hide from
lightning on top of a 14,000 foot mountain. Get real. Everybody
is fair game, you look at Glamis in Guatemala, Meridian in Argentina,
even a smaller company like Manhattan at Tambo Grande.
This was a junior company, but everybody is fair game. Newmont
is the biggest target and we have people that respond to these
issues more than anyone else mainly because of that. Unless you
have your head in the sand, these problems go with the territory.
GMSR: We talked earlier about the industry being margin-challenged
right now, and it is also well known to be reserve-challenged.
In the nineties the major mining companies seemed willing to
buy now before prices went higher. In this cycle they appear
to be lying back and seem willing to pay more to know more. The
majors are also taking small steps into juniors, much as Newmont
has done with Gabriel and several other junior companies. As
the majors need some of the discoveries being made by juniors,
how do you see the consolidation story playing out?
PL: I am very optimistic in terms of reserve increases
over time. The exploration effort basically stopped with the
Bre-X crisis. It shut down the raising of money by junior companies,
and the gold price fell down to $250 in 1999. At that price the
world was telling the industry 'we don't want any more gold.'
The big companies shut down their exploration departments and
we have now had a drought for seven years. Still, in 2004 the
junior companies were able to raise $2.3 billion in Toronto alone.
It takes a couple of years before they get the people, before
they get the land, and they are able to really start putting
money in the ground. I think we will see new discoveries in the
five million ounce range over the next 18 months to two years.
Most everything that is in the market is stuff that has been
around for ten or twenty years already. One reason we're not
seeing more consolidation is because a lot of these properties
are quite challenged. They have been around for a long time for
a good reason.
GMSR: It would seem that we are also going to see
a concentration of the industry where a company like Newmont
has some franchise value attached to it. It can persist through
all these obstacles, whereas the little guys just can't begin
to stand up to the barriers of entry. Is that a fair conclusion?
PL: The barriers of entry are rising. Capital costs
are rising so you need to find a lot more money. Even a small
project today, a 3,000 tonne per day project, costs $400 million
dollars and that is just the beginning. If you start to look
at projects by the bigger companies you are looking at billions
fairly easily. At the end of the day I think our industry will
never be as concentrated as the iron ore or copper industries,
mostly because 30% of the discoveries are still made by juniors
and also because a lot of small mines that the large companies
are just not going to buy, but they can be economic for small
companies. So I don't think you'll ever see the same amount of
concentration.
GMSR: It would seem that we're also not going to see
a growth industry for juniors such as we saw in the eighties
and nineties.
PL: I do believe that the 30% of discoveries by
juniors will still be made. Because of that the juniors will
continue to have access to the public markets. They will make
discoveries and they will be acquired if they make great discoveries.
I don't think that is going to change very much.
 GMSR: One of the investments that NEM has
made in the last year is on the diamond side, a $50 million investment
in Shore Gold (SGF.T/$5.50). You and I have talked a lot about
diamonds going back to the early nineties. For the benefit of
my readers, why diamonds?
PL: Diamonds are just a great business. If you look
at the three largest mining companies in the world, BHP, Rio
Tinto, and Anglo American, guess what? All three of them are
in the diamond business. They are the only three of any consequence.
I think there should be a fourth one, Newmont. When you look
at the exploration statistics in the diamond business, the stats
are horrendous. The gold business is like 1 in 1,000, the diamond
business is more like 1 in 10,000. So we made the decision that
we are not going into exploration, but that if we were to see
an early stage project that we felt had a chance of really getting
to production, we would take a position. That is what we did
with Shore and now with the proposed merger with Kensington,
it represents the largest kimberlite field in the world. It is
low grade, and when we talk about low grade it is like 0.15 +/-
0.02 carats per tonne so it is very low grade. The quality of
the diamonds, however, seems to be quite good. The last valuation
for Shore for the parcel of diamonds was $135 per carat.
We look at that and if we combine
that with Newmont's ability to mine big open pits at very low
cost, we think that the project there has a real shot. Over the
next 18 months as Shore continues to drill out the resource and
produce a feasibility study we'll know whether or not it's going
to make it. Actually, I just like the size of the darned thing.
But I've also been known to be wrong!
GMSR: Given the price Newmont paid and the absence
of diamond mines coming onstream, it would seem that your risk
is rather well defined.
PL: That is right. DeBeers's stockpile is gone,
and there is almost no recycling whatsoever in this business.
The diamonds don't go away, much like gold doesn't go away, but
in the gold business there are 600-700 tonnes of what we call
scrap, recycled gold coming back into the market every year.
There's no such source of supply in the diamond business. A secondary
market will probably come at some point, but in the meantime,
it is all fresh product.
GMSR: In terms of fresh product, the gold ETF (exchange
traded fund), GLD, came out almost a year ago, and you are now
president of the sponsoring World Gold Council. Some people think
that the industry has finally made it easy for their product
to be purchased. Others seem to think that the industry has created
a new product that can be used to place bets against the gold
price. GLD was obviously a hugely successful launch, but what
are your thoughts on how the product has evolved? Is it doing
its job?
PL: In terms of the gold business it is the single
most successful new product since the launch of the Kruggerand
in 1970. Our view is very simple. If you make it easy to for
people to buy a product they will start to look at the whole
chain of product. Some pension fund managers look at gold stocks
and they don't understand the valuations. So they are not going
to buy gold stocks because they can't get themselves to valuations
of two times NAV. They don't understand that gold stocks trade
on optionality values. So for them the bullion is a very simple
way to get into gold as a hedge on their dollar or other currency
positions. God bless them, they would have never bought equity
in the first place. But they are buying bullion, which is good
for the industry. So it is a new product, and has a very different
attraction than for someone who wants to buy equity. Gold bullion
has no leverage, gold goes up 10%, that's what you get: 10%.
You buy a gold equity, gold goes up 10%, the stock will go up
20% if it has two beta, which they do. They are very different
products. What we think we have done is basically enlarged the
pool of money that will look at gold as an asset class. If you
go back to marketing 101 one of the exercises you will do is
this: a McDonald's will open on a busy corner and it gets 10,000
meal traffic days, and then a Tim Horton's opens on the next
corner, a Subway opens on the third corner, and a KFC on the
fourth. The question is 'is McDonalds traffic up or down once
the four corners are busy?' The answer, it's up. Why? Because
it has become a food destination corner. People say 'I don't
know what I am going to have for dinner tonight, let's go to
such and such a corner' because they have a choice. It is the
same with a gold product, the more products you have the more
people are going to say 'I don't know what I am going to buy
but I need an asset diversifier, let me go to this corner and
let me pick something.' In creating GLD, that is what we have
done.
GMSR: The one criticism that I see most often is that
the gold price might run up $20 or $30 dollars but the amount
of gold held does not seem to change. How do you explain this?
PL: One of the structural issues of the GLD, because
of the way it was created under SEC rules, GLD is what they call
a perpetual offering, which means you can't promote the product.
Because of that the brokers cannot solicit their clients, it
has to come from the clients. That is a real issue. We have a
million brokers out there that could sell the product, but they
can't solicit. We are looking at what can we do to change that.
Our goal is to make the population aware, the big players aware,
and I think you will see demand come into the market. On the
launch we were able to go around and do that and we were very
successful, but it takes a continuing effort. We are working
with the listing broker and the SEC as well because they are
ones who regulate the product.
GMSR: Asian demand has helped the gold price in recent
years, but are the Asians buying this product?
PL: We are planning to list the product in Hong
Kong and there is also a plan to list it in continental Europe.
The idea is to have it on enough exchanges that it will trade
24 hours a day/seven days a week. It takes time but I think the
product will continue to be very successful. In six months GLD
took down 250 tonnes.
GMSR: You're known for talking four digit gold prices
and that is something that seems to throw a lot of people, who
seem to think that $1000+ gold sounds like a big number. Given
the amount of monetary creation since gold hit $850 25 years
ago, $1000 gold seems to me more like chump change.
 PL: If you go back to that chart I talked
to you about, the Dow Jones/gold price chart, one of the points
I touch on is that every hard asset bull market has ended with
a low, low, single digit ratio. In 1980, gold was 800 and the
Dow was 800. In 1932 the Dow touched 37 and the gold price was
$35 in 1934, there was a bit of a disconnect in terms of prices.
It ended up at less than two to one. I do believe that when you
look at the financial imbalance in the US system, a 6% current
account of GDP deficit, you look at the amount of debt being
created in the private and public sectors, to unwind all of these
excesses will take time. I don't think it is going to happen
in the next one or two years; it is going to take a lot longer
than that. If you look at a low single digit number, I don't
think the Dow is going to crash through 1,000. In 1966-67 the
Dow lost about 40% of its value going from 1,000 to about 600.
In the 30s it lost 90% of its value but then you had deflation,
outright deflation like we've seen in Japan the last 15 years.
I do not believe we are going to see outright deflation in the
United States, I think it is going to be more like a muddle through,
so I still think the Dow is going to be 6000 to 8000 +/- something.
When you look at the amount of money that has been created, what
I see is a gold price that will have three zeros after the first
number. But I don't know what that first number is going to be.
Yes, over $1,000. Is it going to be in the next year or two,
I don't think so, I think it is going to be a 5-8 bull market
that we have in front of us. So the place to be over the next
5-8 years is hard assets. That's what it is, gold, oil.
GMSR: As your partner Seymour is fond of saying, 'If
you want to make money, find a secular trend and ride it.'
PL: This is a major, major secular trend that only
happens once every two generations. You get on it and just stay
with it. That's how you are going to really make money.
GMSR: Pierre, thanks for helping my readers in that
cause.
Bob Bishop
September 19, 2005
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