Barrick Gold (ABX) Message Board

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Gold/Mining/Energy : Barrick Gold (ABX)

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To: tyc:> who wrote (2801)	5/17/2002 10:55:39 AM
From: nickel61	of 3558

It is critical for all shareholders to understand that the hedges are created by Barrick going short gold by borrowing it from a bullion bank who in turn borrows it from a central bank. Barrick then sells this borrowed gold in the market at spot(some would argue therebye increasing the supply of gold in the spot market and depressing the gold price somewhat) and then has a contractual obligation to return an amount of gold equal to what they borrowed plus a lease rate factor (1% or 2%/year) to the bullion bank/central bank when they want it back. So a short gold position is established with every hedge that Barrick puts in place. A short like any other that must be repaid by delivering when the lender wants it back. The cost of providing that gold in the future to repay the short loan is an obligation that will have a cost even if only an opportunity cost and that is what the significance of the future market price of gold is. That is the revenue that Barrick will forego when it delivers the shorted gold. Now you were complaining about everyone on this thread having a closed mind. You wouldn't want to be acused of that yourself would you, so follow the explanation and ask questions if you don't understand something.

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