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 (1606)	12/18/1999 11:14:00 AM
From: re3	Read Replies (1) \| Respond to of 3558

dd why do you post here ?

To: Enigma who wrote (1606)	12/18/1999 11:15:00 AM
From: Ken Benes	Read Replies (2) \| Respond to of 3558

You really have a lot of confidence in a company that is utilizing hedges that you admittedly do not understand. A simple lesson, let us compare Barrick to an oil producer. Barrick leases gold from a central bank for a small interest charge, then sells it at the market and invests the proceeds in safe US treasuries yielding +/_6%. They pocket the difference. They guarantee the lease with a forward sale contract for an equal amount of gold that will be delivered at a specific price in the future along with their in ground reserves. On the surface everything looks great. However, before we rush to judgement, let us look at an oil producer. He engages in forward contracts to deliver oil at a specific price above current market locking in a price in an otherwise volatile market. The difference, the oil producer does not lease oil from the US strategic reserve, sell it and invest the proceeds to pocket the resulting contango from differences in interest rate. The oil producer knows that leasing oil, if it were available for lease, would undermine his position by releasing additional supply to the market. The producers interest is locking in prices in a volatile market influenced by supply and demand factors beyond his control. He has no interest in artificially creating additional supply that will effect the markets. Now lets return to Barrick. Their forward sales are locket into time and price. Their leased positions can be rolled forward into perpetuity. The increase supply created thru leasing exerts downward pressure on the price of gold undermining the price of future forward contracts. This is the situation we have witnessed up to the recent two months. Since then, the viability of the complex nature of the short position in gold and the precarious situation of many producers have precipitated a short squeeze resulting in a sharp rise in the pog. Barricks position is more tenuous today than it was a year ago with interest rates and the pog falling. We now are witnessing rising world wide interest rates, and a pog that appears to have bottomed and may be on the advent of a substantial rise. This does not bode well for barrick and the other large hedgers. Their contango positions along with their short contracts with the bullion banks are time bombs that should be closed out. Unfortunately as has been posted on this and other boards, there is not adequate supply to close these positions. Barrick and the other hedges have a vested interest in keeping gold in its current range. Their position coincides with the position of the cb's who have a vested interest in keeping the pog low for monetary and fiscal reasons. How sad, with all the sophistication in the financial markets, that these companies have backed themselves into a corner. They have engaged in a type of hedging that no other producer of raw materials would utilize for two reasons: 1) the undue risk; 2) the availability of supply is either noexistent or the governments of the world have no interest in selling vital commodities from their strategic reserves. Why do governments not confer the same status on gold. What can be more strategic than a commodity that validates currency and provides a bit more than the full faith and backing of a government in maintaining value for their legal tender. Double D you must have made been a good mouseketeer or Howdy Doody ite, because your peanut gallery status is unmistakeable. Tell me what to root for and I will cheer louder than anybody. Keep asking the questions and someday you may begin to understand something that is quite simple. Ken