Gold Stocks, Metal Prices Plunge Inland Northwest Companies Fare Better Than Most

Barrick Gold Corp., Newmont Mining Corp. and other gold producers plunged after bullion prices in New York reached 12-year lows.

The decline in gold prices and shares of metal miners began Thursday after Australia’s central bank said it sold 167 metric tons, or two-thirds of its reserves, prompting speculation that other countries would unload holdings as gold loses its allure as a hedge against inflation.

“With virtually no inflation, you don’t have to own as much as you used to,” said Vernon Winters, chief investment officer at Mellon Private Asset Management in Pittsburgh, which oversees $32 billion. Winters said gold prices could fall another 10 percent or more.

Barrick Gold retreated 2 1/16 to 19 7/8 and Newmont dropped 2 5/16 to 35 9/16 on concern that companies would halt production at unprofitable and that sales by banks could satisfy demand for jewelry and other uses.

Losses were not as great among most Inland Northwest mining companies. Gold Reserve fell 13/16 to $7 7/16; Pegasus Gold dropped 1/4 to $5 5/8; Coeur d’Alene Mines slipped 1/4 to $12 3/4; and Hecla Mining was off 3/16 to $5 1/8. Asarco, which operates mines in North Idaho’s Silver Valley, actually rose 5/16 to $31 5/16.

The Standard & Poor’s 500 index of gold companies dropped 8.9 percent to 174.56, its worst decline since September 1993. Having lost more than 25 percent of their value this year, gold shares, as measured by the S&P Gold index, are by far the worst performing group of stocks in the benchmark S&P 500 index.

“Investor sentiment, at least today, is very negative,” said Todd Hinrichs, an analyst at ABN Amro. “Gold equities are still assuming prices of $355 an ounce.”

Gold traded on the Comex division New York Mercantile Exchange fell as much as $10.60 to $314.60 an ounce, the lowest since March 1985, before recapturing half of that loss at midday.

“We view this sale as yet more evidence that central banks all over the world are reevaluating the role of gold in their portfolios,” wrote Peter Ward, a gold equity analyst at Lehman Brothers, in a memo to clients early today.

As the third-largest gold producer in the world, Australia was expected by many to hold on to its holdings and stem the metal’s decline, Ward wrote.

“Our concern is that if Australia isn’t concerned about protecting the allure of gold, who will be?” Ward wrote.

Other declining shares included Echo Bay Mines Ltd., off 3/8 to 5 3/15 and Placer Dome Corp., down 2 1/16 to 14 3/16. Getchell Gold Corp., a development-stage company, skidded 4 3/8 to 30 3/4 and Homestake Mining Co. sank 1/2 to 12 1/2.

At current prices, Hinrichs said that Homestake’s Kalgoorlie mine in Australia as well as its Homestake Mine in the U.S. were “at-risk” of shutting down because of their high-cost operation. Those two mines constitute 40 percent of Homestake’s production capacity.

Some investors said they would remain invested in gold, because the companies weren’t going out of business anytime soon. “I don’t think that the gold market is going to disappear,” said Kevin Nyssola, a money manager at I.G. Investment Management in Winnipeg. I.G. Investment, which manages $27.1 million, purchased some 1.8 million shares in Barrick in March.

Hinrichs said he’s more bullish about the price of gold than he was a couple of months back, when it traded at $340 an ounce and more. “We’re very much near the bottom of what we expected.”

Gold has traditionally held by banks as a hedge against inflation. With prices in check around the globe, many countries now see selling their gold holdings as a quick way to raise cash and balance budgets.

, DataTimes