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Does Barrick Gold's Axing its CEO and Founder Signal a Market Bottom?

November 13, 2013 4:44 pm
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It was recently announced that the chairman and founder of Barrick Gold (NYSE: ABX), Peter Munk, would be stepping down. For the shareholders, that move is coming way, way too late. For 2013, Barrick Gold, the world's second largest gold, is off by almost 50 percent for 2013.

That is certainly not atypical for that sector, though.

Shares of Goldcorp Inc (NYSE: GG), the largest gold company in the world, have fallen more than 40 pecent over the last year of market action. SPDR Gold Shares (NYSE: GLD), the main exchange traded fund for The Yellow Metal, is down nearly 25 percent for 2013. Over the same time period, iShares Silver Trust (NYSE: SLV), the main exchange traded fund for silver, has declined by more than 30 percent.

That naturally raises the issue of whether it is time for long term investors to buy gold and silver securities.

As one commentator noted about departure of Munk, "the last decade at Barrick has been marked by a series of strategic missteps."

"The company bungled its way out of a commodity price hedging program that cost investors billions," he added. "In a costly empire building campaign, Barrick purchased mine after mine at unjustifiably high prices. And its forays outside of precious metals and into copper resulted in a $4 billion writedown. Most astoundingly, the company has an accumulated deficit –- cumulative profits less dividends over the entire life of the company -– of $4.71 billion."

"Even when you add dividends back to that figure," he continued, "Barrick has generated barely any GAAP profits over its history as a publicly traded company. The tragic misallocation of capital has left the company saddled with nearly $16 billion in debt and almost nothing to show for it."

But that hardly means that gold and silver will never rise again.

In an interview in The Wall Street Journal, former Secretary of State and Secretary of the Treasury George Shultz warned about the threat of inflation due to the monetary policies of the Federal Reserve. Inflation is always bullish for gold, as investors lose faith in fiat currencies and seek shelter in precious metal assets.

Demand from India and China is also a huge positive factor, too. The two largest consumers, individuals and the central banks of the world's two most populous countries both prefer to invest in gold.

For companies like Yamana Gold (NYSE: AUY) and Wishbone Gold PLC (OTC: WISHY) that have holdings in Australia, increasing demand from Asian markets should be very rewarding for shareholders. In a recent interview, Wishbone Gold PLC Executive Chairman RIchard Pouldon pointed out that Asian buyers now want the hard asset, not the paper security.

No matter what form, investors are looking at lower prices for gold and silver in the short term. But as former Secretary Shultz warned, inflation should be coming — due to the quantitative easing measures being deployed around the world by central bankers.

If prices start rising due to inflation from monetary policy, so will the stock prices over the long term for Goldcorp, Barrick, Yamana, and Wishbone Gold PLC.

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