All die hard hedgers will receive the kiss of death when the gold price spikes up:
Don't be misled by Barrick's hedging changes. They did not cover shorts of 212 tons of gold. They bought calls for 50% of their hedge position. They have made a public relations move, but have not put any upward pressure on gold prices, nor will they. Barrick is as deceitful as ever. If you own their stock, sell it and switch to a producer that was always unhedged. Otherwise you contribute to your own financial demise. All Barrick and other producers are doing by buying calls is capping the gold price. According to their releases, which do not jibe with previous releases, 400,000 ounces were delivered under forward contracts, a reduction of 1.3 million ounces in written calls and the purchase of new calls for 6.8 million ounces. These newly purchased calls are for cash settlement only having been purchased from bullion banks, whose identities are secret. The cost of the calls was $68 million. This is not the same as buying back 212 tons of gold. Every dollar the calls are above the strike price will be added to Barrick's floor price of $360 an ounce in 2000, but they still will lose a like amount on forward sales. The additional question now is will they go short against the calls? If they did it would be expected they and the bullion banks would sell to keep gold under $319 an ounce and $335 an ounce to avoid losses. In addition, we really don't have the intimate details of the calls purchased, so we can't tell their outcome. Who is it that can take a $680 million loss if gold moves higher? The only one we can think of is the US Treasury, using your tax dollars to steal from you. Barrick's real problem is they can't cover their shorts. the liquidity does not exist to do so. Thus, our tax dollars rode to the rescue. If $360 is broken, the next stop is $500 to $600 an ounce. Since August Newmont's share price is up 24.4% and Barrick is off 1.7%, sell Barrick. Just a year ago Barrick CEO Oliphant told a New York journalist that the GATA folks were a bunch of nuts and belonged to the conspiracy. Perhaps we should begin writing about Messrs. Munk and Gilmour's sordid past. |
