Barrick Gold (ABX) Message Board

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Gold/Mining/Energy : Barrick Gold (ABX)

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To: loantech who wrote (2832)	5/18/2002 10:12:27 AM
From: nickel61	Read Replies (1) of 3558

It is important to understand that they are not really selling above market price...it is the way they account for it. They sell at spot market price, gold they have borrowed from a large holder of gold reserves(generally a central bank that has gold bars sitting in a vault to back up their currency)This gold is then taken from the central bank vault and sold in the spot market. An interesting aside is that the accounting of central bank reserves dictated by the IMF allows the central bank to lend the gold that is then sold in the spot market and made into jewlery or whatever, and the central bank can still keep it on it's financial statement as if the gold bars were still there, just "leased" yes that is correct, they actually do that) Well then the borrowed gold is sold and the cash proceeds are used to buy US treasury notes of a five year maturity. The 5% per year interest that Barrick will recieve on the treasuries is then compounded into the future and added to the origional spot market price they got for selling the borrowed gold and claimed as the "sale" price, today. Yes that is actually what they are doing. In fact the sale price is not anything other than the accounting estimate of how much they will earn on the cash balance for a period of time into the future that they determine. That is the significance of their claims about being able to defer the delivery or closing of the contract up to fifteen years into the future, it allows their accountants to play more games with how long the 5% will be compounded and therefore claim an even higher current "sale price". I know it sounds too unbelievable to conceive of but that is exactly what they are doing. IF more shareholders knew exactly what was going on they would demand much more honesty in the reporting. But Barrick is hiding behind the financial mumbo jumbo and concealing the true nature of the process from the shareholders who are not privy to the nature of exactly what they are doing.

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