The coming US dollar crisis Message Board

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Strategies & Market Trends : The coming US dollar crisis

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To: ggersh who wrote (22656)	9/9/2009 4:04:24 PM
From: Nevada9999	Read Replies (2) of 71456

Barrick put on most of those hedges in the late 90's and looked pretty smart for several years. They used to boast that they were getting $345 for their gold (that included profits from contango on top of the hedge price). That sounded sky high when gold had been $275-300 for what seemed like forever in late 2000. Barrick also claimed they were against no time limit to cover. Consensus was that gold was going to $200. Homestake sold out to Barrick mostly because they had no hedge and believed they were doomed. I was told that by a prior Homestake executive. I believe there were 2600 tonnes of gold sold forward worldwide by 2001. Clearly it drove the market for several years as a large chunk of global gold production went into covering forward sales. Anyway, gold didn't go to $200, it went to $500, then $800, now $1000. A couple years ago I heard Barrick still had 17 million ounces hedged. They had moved the hedges to development resource ounces, so they could claim their production was unhedged. I don't see this as a long term top, but investment demand will have to drive gold higher. There is a psychological barrier at $1000 and that is all it is and it is keeping a lot of money on the sidelines. Production costs are an important factor assuming there is demand. The best deposits are producing at $500 cash costs right now and I doubt even these companies can make an actual profit with gold under $800. Cash costs on many deposits are already $700-800. Looking forward at resource ounces that might be mined, I think production costs will rise above $1000 within a few years without any inflation. Discovering another 75 million ounces of gold every year to cover present demand is a tall order. This may be what Barrick is seeing. If gold doesn't rise above $1000 production will plummet instead of continuing to decrease.

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