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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: TimbaBear who wrote (21699)	7/31/1999 8:12:00 PM
From: pater tenebrarum	Read Replies (1) \| Respond to of 99985

TB, one more thing...since gold lease rates have recently unexpectedly shot up, hedging strategies have suddenly become a lot less profitable than they used to be. producers have now the choice to either buy some of their hedges back or maybe see some of their marked-to-market hedging profits disappear from their books. i haven't seen the ABX financials, but will take a look. if , as you suggest, their estimates of production costs are partly based on their hedging strategies, it could indeed cloud their profit outlook somewhat if they are not nimble. all i know is that ABX is known for being the most active and aggressive hedger among the mining co's and as long as gold is in a bear market their strategy is surely a winner. as Benkea pointed out, their ability to deliver the physical gold is a hedge against their forward positions, but in a rising gold price environment their earnings growth potential would be limited unless they bought back their hedges. anyway, if gold lease rates continue to stay high, the producers' tendency to sell the rallies with their hedges would be a lot less pronounced. up until now this activity has contributed a lot to limiting the size of gold's bear market rallies more and more. with this potential overhead supply removed, the next rally in gold, even if it is only yet another bear market rally, should be more sizeable than the most recent feeble attempts. a difficult-to-gauge factor remain the central banks, who are a potential source of vast supply. however, i suspect that it would actually be politically more feasible to sell gold reserves if gold continues to go down than in the case of a change of fortunes for gold. as long as it does go down, a sale will always be perceived as judicious, whereas a rising price would lead people to ask, why sell something that's going up? of course, some central banks are supposedly quite good at timing short term tops for their sales, unlike those who announce them in advance..<g> anyway, since the fundamental factors include imponderables such as future central bank behavior, the strongest point in favor of gold remains the depressed sentiment, which is inverse to stock market and dollar sentiment. regards, hb

To: TimbaBear who wrote (21699)	7/31/1999 8:52:00 PM
From: Smooth Drive	Respond to of 99985

Hello All, Good to see some discussions relative to bonds and interest rates. In the event anyone is not up to speed on the relationship between interest rates and bond prices, the old teeter toter is a good visual image to remember. Here's a simple illustration: 6% 5,200 Premium Bond 5.5% 5,100 Premium Bond 5% --------0-------- 5,000 Par Value Bond 4.5% / \ 4,900 Discount Bond 3% / \ 4,800 Discount Bond In this example, let's assume an investor purchases a $5,000 Muni bond with a 10 year life paying 5%. Now, if the holder of this bond never sells, he/she will always be paid 5% and at the end of 10 years get their $5,000 back. But, let's further suppose that AG raises rates a few more times and 10 year Muni's are paying 5.5%. And, this investor must sell the bond because of the plumbing work around the house(g). Well -- just raise the left hand side of the TT up to 5.5% and the other side will drop to $4,900 now becoming a discount bond. Yes, the investor lost money. Conversley, if rates had fallen, this would have become a premium bond and the investor would have made a capital gain. The ole teeter toter also works well for remembering how two currencies act with each other. Let's use the US dollar (US$) against the Yen. US$ YEN 150 150 125 125 100 100YEN-------O-------$100US 100 75 / \ 75 50 / \ 50 The left side of the TT represent 100Yen and the right side $100 US dollars. The left column represents US Dollars and the right column Yen. Let's further assume we're a money changer, and currently $100 US dollars can be converted to 100 Yen and vi sa versa. Now, because of (you pick the reason) the US$ drops against the Yen, then lower the right side of the TT to say, 75, which raises the left side to $125. This means you can now exchange $100 US Dollars for only 75 Yen, but they can convert 100 Yen to $125 US Dollars. In this example, the Yen buys more US product and the US Dollar buys less Japanese product. So, if the Japan decides to buy up their own currency, what happens? Take care, Eric