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All that glitters

By Kevin Darst
The Daily Times-Call

FORT COLLINS — After a momentous January that saw gold prices reach seven-year highs, the precious metal could see its “war premium” fall $25-$30 from that high, the head of the world’s biggest gold producer said this week.

“There’s a real premium, and it will go away,” said Wayne Murdy, the chief executive officer of Denver-based Newmont Mining, which last year became the world’s largest gold producer.

Comex gold futures hit a seven-year high Tuesday, topping out at $379.80 an ounce in New York on the eve of Secretary of State Colin Powell’s presentation to the United Nations.

The presentation, which the United States said proved Iraq possesses chemical weapons, helped shore up global support for the war effort, some analysts said.

The development sparked the first of several days of declining prices for gold, which fell to about $370 an ounce by the close of New York trading Friday, on the assumption that an attack against the country would be swift.

A steady dollar and reduced concerns of inflation also pushed gold’s price down, analysts said.

“Last year, gold was driven by the fundamentals,” Murdy said. “Right now, gold is driven by a war premium. Once Iraq is settled out, the price will settle down.”

Long considered a safe investment haven in uncertain economic times, gold gained 12 percent from the New Year until Powell’s speech, boosted also by a weak dollar. But the metal’s price was flat against the euro and down against the currency of South Africa, a place of heavy mining, gold analysts said.

“A little bit of (gold) in your portfolio is good,” Murdy said. “If you want to have a little bit of it in your portfolio, you’ve got to pay up for it.”

But the current high won’t last long, Murdy said.

“It’s only back up to the average price it was in the 1990s,” Murdy said. “But we were at prices the industry could not sustain.

“The ’90s were an aberration … and we’re going through a period of correction.”

Murdy admitted his prognostication was based on a peaceful or quick solution to the Iraq situation.

“If it drags out, all bets are off,” Murdy said.

Yet after gold loses its war premium, Murdy said it could continue a steady rise.

“I think you’ll see a fallback of about $25-$30, but then I think it will continue to build,” Murdy said.

Gold dropped $40 an ounce to around $360 an ounce at the beginning of the 1991 Persian Gulf war to evict Iraq from Kuwait, according to thebulliondesk.com.

New York-based investment firm Salomon Smith Barney earlier this week called gold’s recent climb “akin to fool’s gold.” A quick and successful strike against Iraq would make the precious metal less attractive, as would a lack of inflation pressures, the firm said.

But Boston-based Pioneer Investment Management said it was too early to predict gold’s destiny. Low inflation will not last forever, which means banks would again fall back on gold, the firm said.

Kevin Darst can be reached at 303-776-2244, Ext. 405, or by e-mail at kdarst@times-call.com.