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Vancouver mining mogul Frank Giustra. (Michael Falco for The Globe and Mail)
Vancouver mining mogul Frank Giustra. (Michael Falco for The Globe and Mail)

Where eight renowned investors think commodity prices are going Add to ...


‘If I’m wrong ... I will sing Patsy Cline’

Gold’s 12-year bull run is not over, according to Vancouver mining mogul and philanthropist Frank Giustra, despite the severe price correction the precious metal suffered this week.

Mr. Giustra, who has amassed a fortune through a series of junior mining deals, including the creation of the company that is now Goldcorp Inc., said he is now considering switching his gold investments from exchange-traded funds to major gold-mining companies and is willing to endure humiliation – in the middle of downtown Vancouver – should his call on the commodity be proven incorrect.

“If I am wrong, if this gold bull market is over, I will stand in the centre of Robson Square and I will sing Patsy Cline’s So Wrong wearing ladies’ underwear,” Mr. Giustra said in an interview this week.

Gold has fallen about 14 per cent this month and plunged 9.3 per cent on April 15, the largest one-day drop since March, 1980, according to data from Bloomberg News.

In spite of that selloff, Mr. Giustra is confident the yellow metal will rebound because central banks in North America, Europe and Japan are continuing to “print money” through asset purchase programs known as quantitative easing. Despite years of tepid increases in consumer prices, Mr. Giustra insists that inflation is poised to kick in as a result of global monetary policy decisions that have pushed interest rates to historic lows.

“Nothing has changed on the fundamental side ... the behaviour that caused this gold market in the first place is just intensifying with all this money printing that’s going on around the world now,” Mr. Giustra said in a phone interview from the Vancouver airport. He was about to board his private jet for a flight to New York to attend a meeting of the board of trustees of the International Crisis Group, an independent international non-government organization committed to preventing and resolving deadly conflict.

Mr. Giustra called the recent plunge in the gold price and gold mining stocks a “correction and a pretty severe one, but not unheard of.” The Vancouver resident, who counts former U.S. president Bill Clinton as a close friend, said the price of gold corrected by 44 per cent in the mid 1970s before it went on to hit a then record of $850 (U.S.) an ounce in 1980. Gold hit an all-time high of $1921.15 in September, 2011, according to Bloomberg data.

During what has been called the “commodity supercycle,” Mr. Giustra made hundreds of millions of dollars for himself and his associates by assembling mining properties and management teams and taking the assets public on the Canadian stock market using dormant shell companies. He created gold, oil, copper and uranium mining firms. Two years ago, he bet that the beaten-down junior mining sector had bottomed out. He was incorrect.

“I thought it was cheap two years ago. Oh my God, look at it now,” he said.

Mr. Giustra said he is still “heavily” invested in gold, real estate and farmland. He continues to buy art and is holding plenty of cash to be ready to invest once what he deems a deflationary period comes to an end.

Gold has traditionally been seen as a store of value and a hedge against inflation. Mr. Giustra conceded that consumer prices in Western countries have not risen significantly, but he said there has been severe inflation in the price of certain assets such as real estate.

“We haven’t seen inflation in the classic sense ... but you have seen inflation in the form of asset bubbles. If you look at the S&P [500 index] right now, I think that is partially an asset bubble caused by easy money. It’s easy money that is driving the S&P to all-time highs, not actual economic conditions or earnings,” he said.

In 2003 and 2004, Mr. Giustra began selling his stakes in senior gold-producing companies and buying physical bullion and exchange-traded funds in Switzerland that are backed by actual gold. Now he’s considering reversing that trade.

“For the first time in almost 10 years I’m seeing a disparity in the price of gold and gold-mining companies that I’m starting to think of doing the switch from ETFs back into certain gold miners,” he said.

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