Barrick Gold (ABX) Message Board

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Gold/Mining/Energy : Barrick Gold (ABX)

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To: russet who wrote (2299)	4/2/2002 5:25:00 AM
From: nickel61	Read Replies (1) of 3558

I appreciated you commentary. The only situation where the 18 million ounces of gold hedge of Barrick could become dangerous is in a rapid adjustment of the market price of gold. Or put another way in a rapid decline in the value of the US dollar. Most observers would say that the dollar has been and is roughly thirty percent overvalued for most of the last six years. Let's leave the accuracy of that projection aside. The fact is that the tremendous flow of foreign capital into the US under the US strong dollar policy (1995-present)has brought interest rates on US Treasury instruments lower then they would have otherwise been by insisting that the importers to the US market not repatriate their export earnings by converting their US dollars earned back into their own currency. Rather it was required if they wanted to maintain access to the US market for their goods that they reinvest the US dollar earnings in the US. In practice most of this flowed into the US Treasury markets(currently 39% foreign owned)and lowered US interest rates which in turn gave another boost to the stock markets and caused considerable additional strength in the economy of the US, through lower mortgage rates allowing refinancing, increased economic activity in general. This is the reason that the Clinton/Rubin years saw such full employment, low reported inflation(because of all the import pressures holding prices down either directly or through competition with domestically produced goods)and booming stock and bond markets. T he problem is that the tide is turning and the US dollar is not sustainable at this level if the US intends to maintain any manufacturing base at all. The recent trade restrictions and tariffs placed on all foreign imported steel shows the strains of this situation. Faced with a potential fall in the US dollar many of the foreign investors will now strive to keep their gains from its six year appreciation and begin to repatriate their currencies. Not just those US dollars from this years $438 billion dollar trade deficit but all of the money from all of the trade deficits over the last five to six years. In this enviroment you have a large short position in many of the hedged miners and the bullion banks that have been aggressivley playing the "gold carry trade" and are effectively short well over a ten thousand tonnes of gold that they have borrowed at the gold lease rate and sold into the spot market and then speculated in the bond market with using leverage. This game is now over. The question remains are the hedgers smart enough to forsee all of these forces that are roiling the economic horizon or like the management of Enron are they about to be shown as having feet of clay. It ain't easy predicting the outcome of these bets when so many of the variables can change so quickly. THe six fold increase in the Japanese publics purchases of gold bullion February 2002 versus February 2001 is a good example of the unpredictable surges in demand for gold that are possible when you have bank depositors in Argentina and Japan feeling the same panic about their paper currency denominated savings accounts.

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