Barrick Gold (ABX) Message Board

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Gold/Mining/Energy : Barrick Gold (ABX)

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To: russet who wrote (2598)	5/12/2002 7:52:08 AM
From: nickel61	Read Replies (1) of 3558

Russett this paragraph is helpful to delineate the differences in what we are arguing about....it is from one of your posts.."In a declining gold market, the amount you got for the gold minus the current value of the gold is recorded quarterly, and charged to the income statement if it exceeds allowable limits. Conversely they must write it down when the POG rises <<<<<until you hit the value you sold the gold at in previous years plus the investment income you have made on it,...because that's what you got for it and you can't devalue it below that for this reason.>>>>>> "The idea that Pollitt suggests that you keep writing it down ad infinitum at the same rate with increasing in POG is false and misleading." Russet So us gold bulls must understand that Barrick is only going to write off the "losses" on their hedge book(it gold continues to appreciate and they have losses) to the point where they hit the total price they received plus the interest income plus the option writing income on the calls they sold. This is helpful in clarifying the main point...The gold that is hedged is locked in at a set price and the interest and option income enhances that price. The gold bulls think that this locking in of a set revenue stream is foolish if you are going to see higher prices in gold over the near future. And you and Enigma find it a source of strength for Barrick since it guarantees a set "price plus call sales income and interest" for gold that you see remaining roughly in this range. The main difference between the two viewpoints then is pretty basic. I don't think I would be arguing against Barrick's hedge position if I thought gold was going to stay in the $260 to $360 trading range. Their strategy would appear to be appropriate for that type of market price trading range. Some of us believe that the price of gold would be much higher if there had not been as much hedging and selling of future gold into the spot market by various producers and gold carry trade speculators. We tend to think that this disgorging of gold into the spot price allowed the paper market to be forced lower than it would have otherwise been. This allowed massive leveraged profits to be made by the gold carry trade players, who are some of the biggest market players in the world. It also happened to work in the same interests as the US Treasury and the Federal Reserve and most of our G7 trading partners interests. So it happened. I guess the Gold Bulls position can be summed up by the thought that now we feel the time is right for that pressure to subside. If it is removed gold might go back to it's more "normal" range of 1983-1995 of about $400/ounce. Since the market has perhaps been forced down by the shorting of gold(the hedge funds setting up the gold carry trade and the producers hedging to protect themselves from the resulting falling gold price)it is not unreasonable to assume that the snap back in price to $400/ounce might take it considerably higher, at least for the short term. Thus the gold bulls among us see a $400-$600/ounce gold price over the next two years as a definite possiblity. A move that would resussitate additional gold production, give a bull run to junior and major shareholders and attract significant new investment and exploration interest. I somehow doubt that you disagree with any of this. So if you could tell me what part of the above picture you think is not likly to happen in your opinion then we could discuss only that portion and finally finish off this arguement. Thanks.

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