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Gold/Mining/Energy : Gold Price Monitor
GDXJ 93.63-1.4%Oct 31 5:00 PM EST
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To: John Hunt who wrote (36044)6/28/1999 8:58:00 AM
From: David R. Schaller  Read Replies (1) of 116741
 
John, from what I can make of it, Barricks profits are realized in two areas. 1) hedging. They still have 2-3yrs production sold forward at very high prices. Thereby locking in $150/oz profit. This would seem to be a legitimate course of action for a farmer or a mining company to protect their future viability and lock in profits. Whether they or any company should be able to sell forward more than one years production is another question. 2) leasing. This is more questionable. It involves borrowing gold from central banks. Paying a rather low lease rate. Selling the leased gold on the open market. Investing the proceeds of the sale of leased gold.

Shazam! The extra gold on the market drives prices down. Their own production is hedged and profits protected. The borrowed gold can be replaced at a lower price than they borrowed it at. The sale of the leased gold yields high interest/investment income in the interim.

Gold that they leased and sold on the open market at $350/oz would provide them with $10-11/oz/yr interest alone. Knowing the direction of the metal was going to be forced lower it is also hard to believe that they wouldn't avail themselves of shorting a few ounces here and there.

Dave
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