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Northern Rock Bailout Lifts Investor Gold Demand - BlackRock

Last Update: 4/9/2008 12:34:27 PM

LONDON (Dow Jones)–The bailout of Northern Rock PLC, the nationalized U.K.
mortgage lender, has increased demand for gold as investors, worried that
increased liquidity will erode the pound, look to conserve value by investing in
gold, BlackRock fund manager Graham Birch said Wednesday.

“The Northern Rock bailout has given the impression that there is an infinite
supply of money…while gold is not in infinite supply,” said Birch, who manages
$3.2 billion in funds.

“This has driven fresh investment demand,” he told journalists.

A U.S. economic slowdown and broader share market malaise has dragged on gold
mining equities, making them “cheap” relative to gold, Birch said.

BlackRock favors “new frontier” miners in Russia, China and South America over
“mature” gold-producing regions such as Canada and Australia, as the search for
good quality gold deposits intensifies.

The fund has picked up shares in Yamana Gold Inc. (AUY) in the last year, also
adding to Hong Kong-listed Zijin Mining Group Co. Ltd. (2899.HK) stock last month
to take advantage of a fall in share price, Birch said.

Of the portfolio, 70% comprises gold mining stock and 12% platinum mining
equities. The open-ended unit trust, which launched in 1988, has 2.5% of exposure
to gold prices through LYXOR Gold’s exchange-traded fund.

Fundamentally, investors will continue to erode jewelry market share and keep
gold prices elevated until there is a supply response from gold miners, which
doesn’t look like happening any time soon, he said.

Last year, investment demand hit 20% of total demand for gold, up from 9% in
2001, while jewelry demand slipped to 68% last year from 77%.

Gold production meanwhile tumbled to an 11-year low in 2007 despite record-high
gold prices, and output is expected to remain the same this year, according to
figures by consultancy GFMS.

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