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Barrick Sees `Large-Scale' Gold Buying on Bailout

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09/25/2008 05:37 PM
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Barrick Sees `Large-Scale' Gold Buying on Bailout
[link to www.bloomberg.com]

Barrick Sees `Large-Scale' Gold Buying on Bailout (Update3)
By Stewart Bailey and Rob Delaney

Sept. 24 (Bloomberg) -- Barrick Gold Corp. Chairman Peter Munk said bullion prices will go higher, driven by large-scale buying by ``major, major'' holders of dollars who fear the effects of the U.S. government's bailout plan on the currency.

Central banks or sovereign wealth funds are among those likely to buy gold to diversify their investments and hedge against the risk of a weaker dollar, given the government's $700 billion plan to support the banking system, Munk said today.

``That impact on holders of U.S. dollars in China or Russia or Abu Dhabi or Kuwait is that they're going to say, `What is that going to mean for the U.S. dollar, and what alternative are we going to have?''' Munk said in an interview in New York. ``So gold is going to have very powerful support.'' Munk, 80, founded Toronto-based Barrick in 1983 and made it the world's largest gold producer.

Gold has surged about 20 percent since Sept. 11 as investors shifted assets into precious metals as a haven after the bankruptcy of Lehman Brothers Holdings Inc. Treasury Secretary Henry Paulson plans a rescue fund to allow banks to dispose of devalued assets such as mortgage-backed securities.

Paulson and Federal Reserve Chairman Ben S. Bernanke told lawmakers this week that failure to approve the plan would threaten markets and the U.S. economy. Gold may be set to benefit both from the weaker dollar if the plan is approved by Congress, or from the potential failure of the banking system if it isn't.

Rescue Package

``I, like anybody else, hope the package will go through because we do not want the system to collapse,'' Munk said. ``From a gold point of view, a bailout package just means a further devaluation'' of the dollar, he said.

Gold futures for December delivery fell $4.70, or 0.5 percent, to $886.50 an ounce on the Comex division of the New York Mercantile Exchange, after earlier reaching as high as $907.80. The metal, often bought as a hedge against inflation or in times of market volatility, gained 13 percent last week, the most since October 1999.

The price could surpass the $1,033.90 record touched on March 17, Barrick Chief Financial Officer Jamie Sokalsky said in a separate interview. The bailout plan is another ``big'' reason to buy the metal, he said.

Barrick rose C$1.15, or 3 percent, to C$39.95 at 4:15 p.m. in Toronto Stock Exchange trading, taking its gain in the past week to 13 percent.

Investor Support

The bullish view on gold has support from investors, with Jean-Marie Eveillard, who manages the $22 billion First Eagle Global Fund, and John Hathaway, manager of the $800 million Tocqueville Gold Fund, predicting the inflationary effects of the Fed's plan will help push prices higher. Chief executive officers of mining companies such as Newmont Mining Corp. and Goldcorp Inc. also predict new records for bullion.

Munk has been acting chief executive officer since March, when Greg Wilkins stepped down because of illness. He's overseeing a plan to dig mines in the Americas and Africa to benefit from seven straight years of price gains.

A search for a permanent replacement for Wilkins is under way, with a successor expected to be named by the end of the year, company spokesman Vince Borg said in an interview.

Barrick's standing as owner of the world's largest gold reserves will make it easy to attract buyers for its debt even as credit tightens, Munk said.

``We have to look long term, and we have to make billions of dollars of investments and investment decisions,'' Munk said. There were ``people lining up for our bonds. We are really the counterplay to the market -- in market turbulence, people do like gold.''
"One can evade reality, but one cannot evade the consequences of evading reality." --- Ayn Rand
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