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Billionaire Buys Gold for the First Time

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Billionaire Sam Zell said he recently took the plunge and bought gold.

“For the first time in my life, I bought gold because it is a good hedge,” Zell said during an interview on Bloomberg TV.

Zell, 77, is the founder and chairman of Equity International, a private investment firm focused on building real estate-related businesses in emerging markets.

He told Bloomberg TV shrinking production also makes gold an attractive investment right now.

Go back to supply and demand. Supply is shrinking and that is going to have a positive impact on pricing.”

Zell pointed out that mining companies have put very little money into exploration in recent years. This does not bode well for gold output in the near future.

The amount of capital being put into new gold mines is almost nonexistent. All of the money is being used to buy up rivals.”

Zell was referring specifically to two mergers in the mining sector. Late last year, Barrick Gold and Randgold Resources combined in an $18.3 billion deal that created the world’s top gold miner by value and output. But the new Barrick’s reign as top dog in the gold mining sector didn’t last long. Last week, Newmont Mining Corp. announced it was buying Goldcorp, Inc. in a $10 billion deal. Once the merger is completed, the Newmont Goldcorp will top Barrick’s $24 billion market cap. As Kitco News put it the merger will “create an unmatched portfolio of operations, projects, exploration opportunities, reserves, and people in the gold mining complex.”

We’ve reported extensively on shrinking mine output and the prospects of declining production in the foreseeable future. According to Bloomberg, “The combined gold reserves still buried in mines — an indicator of production prospects– shrank by more than 40% in 2017, from its peak after companies cut spending on exploration and development of new projects.”

There are signs that output is beginning to plateau. Some analysts even believe we may be at or near “peak gold” — the point where the amount of gold mined out of the earth will begin to shrink every year.

While world gold output hit record highs in 2017, it only grew by 5.7 tons according to the World Gold Council. That represented the smallest increase since 2008.  According to a report by S&P Global Market Intelligence, while gold production will increase marginally over the next three years, there are troubling signs on the horizon. In fact, some analysts project gold output in several key countries, could slump to “generational lows” in the midterm.

Zell is right about gold being a good hedge. We saw this firsthand as stocks plunged at the end of 2018. Gold outperformed the S&P 500 in December, through the fourth quarter of 2018, and over the entire year.

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