TB, one more thing...since gold lease rates have recently unexpectedly shot up, hedging strategies have suddenly become a lot less profitable than they used to be. producers have now the choice to either buy some of their hedges back or maybe see some of their marked-to-market hedging profits disappear from their books. i haven't seen the ABX financials, but will take a look. if , as you suggest, their estimates of production costs are partly based on their hedging strategies, it could indeed cloud their profit outlook somewhat if they are not nimble. all i know is that ABX is known for being the most active and aggressive hedger among the mining co's and as long as gold is in a bear market their strategy is surely a winner. as Benkea pointed out, their ability to deliver the physical gold is a hedge against their forward positions, but in a rising gold price environment their earnings growth potential would be limited unless they bought back their hedges. anyway, if gold lease rates continue to stay high, the producers' tendency to sell the rallies with their hedges would be a lot less pronounced. up until now this activity has contributed a lot to limiting the size of gold's bear market rallies more and more. with this potential overhead supply removed, the next rally in gold, even if it is only yet another bear market rally, should be more sizeable than the most recent feeble attempts. a difficult-to-gauge factor remain the central banks, who are a potential source of vast supply. however, i suspect that it would actually be politically more feasible to sell gold reserves if gold continues to go down than in the case of a change of fortunes for gold. as long as it does go down, a sale will always be perceived as judicious, whereas a rising price would lead people to ask, why sell something that's going up? of course, some central banks are supposedly quite good at timing short term tops for their sales, unlike those who announce them in advance..<g>
anyway, since the fundamental factors include imponderables such as future central bank behavior, the strongest point in favor of gold remains the depressed sentiment, which is inverse to stock market and dollar sentiment.
regards,
hb |
