Equity Group founder Sam Zell buys gold for first time as supply diminishes

Sam Zell, founder, Equity Group Investments

SAM Zell, the founder of Equity Group Investments, told Bloomberg News he had bought gold “for the first time in my life” in the belief that diminishing supply would send the price of the metal higher.

“For the first time in my life, I bought gold because it is a good hedge,” Zell, a billionaire businessman, said in a Bloomberg TV interview. “Supply is shrinking and that is going to have a positive impact on the price,” he added.

Spending on new mines began to dry up after prices of the metal tumbled from a record in 2011, clouding the outlook for production, said Bloomberg News. With gold still down by almost a third from its peak, the biggest miners are just looking at buying their competitors in a bid to bolster their output pipeline.

“The amount of capital being put into new gold mines is a most nonexistent,” Zell said. “All of the money is being used to buy up rivals.”

The $10bn takeover of Goldcorp by Newmont Mining on January 13 will raise the ante on consolidation in the gold industry, said Bloomberg News in an article republished by BusinessLive and which cited the views of analysts as well as David Garofalo, CEO of Goldcorp.

As with the merger of Barrick Gold with Randgold Resources where the enlarged company is considering hiving off assets that don’t match its new profile, Newmont-Goldcorp will put non-core assets into the market creating opportunities for small and mid-cap companies.

“Somebody has to buy those, so there’s obviously going to be more consolidation of those assets into existing vehicles or potentially new vehicles,” Goldcorp CEO David Garofalo told Bloomberg News in a phone interview.