Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Barrick Gold (ABX) -- Ignore unavailable to you. Want to Upgrade?

To: Enigma who wrote (1586)	12/17/1999 10:10:00 AM
From: Terry Swift	Read Replies (1) \| Respond to of 3558

"One simple question - which others may want to expand on - doesn't every company which sells forward borrow the gold?" Definitely not. A simple forward sale is an agreement to deliver mined gold at a date certain in the future. There is no interest rate risk in a simple forward sale because no gold has been borrowed. Barrick is doubling their risk by borrowing the gold they are selling forward. Barrick is up to their eyeballs in the "gold-carry" trade, which explains why they have never joined the other majors in urging the Bank of England (and other countries) not to sell or lease their gold. Also, in a simple forward sale, a company is not at risk if the price of gold rises. They have, in effect, sold a futures contract and will deliver the gold at a date certain from gold they will mine. Not the case with Barrick. They have borrowed the gold from a bullion bank. As such, they are exposed to interest rate risk and the risk of the POG rising. As the article states, Barrick cannot repay the gold it borrowed without driving the price much higher, due to the lack of supply in the physical market. Also, if gold lease rates move higher (which is very possible in a tight physical market) Barrick will get killed. Imagine gold lease rates hitting the levels that platinum rates have been at for the past few months. Platinum rates were at 80% at one time. Barrick would be wiped out. An increase in the POG and/or gold lease rates hurts Barrick over the next 2 years, for certain. Unbelievable. A gold mining company that doesn't want the POG to go up or, for certain, not go up by very much. If you want to buy a hedge fund, buy Barrick. If you think gold is going higher, buy something besides Barrick. If you own gold or gold stocks, Barrick does not share your hope that the POG rises. Is this a great company, or what?