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 (1677)	12/30/1999 9:43:00 AM
From: nickel61	Read Replies (2) \| Respond to of 3558

We have finally found the source of our arguement. The gold market is different than all other commodities in the way hedging is conducted. And that is for one simple reason the above ground stocks are over fifty times the annual mine production. So it is possible to increase the supply that is available to the spot market by borowing or as they call it "leasing" gold from a large holder who intends to get it back in the future and therefore leaves it on his books as an asset as if nothing had occurred. The large holders that usually have sufficient quantiies to lend the gold out without the portion that is lent out having much of an effect are the large Central Banks. They are only holding the gold as a emergency back up to be used as true money with other countries should something go wrong with the paper currencies they are holding in their reserves to support their own currency in circulation. They figure the fiat currencies are so strong now a days that the gold is unlikely to be needed so why not make a rent or interest by lending as postion of it out. The Bullion Banks who have superior credit ratings are the immediate borrower from the CBs and they in turn "lend" or lease it to a speculator like Tiger Fund or to Barrick a producer. The gold is then sold into the market at spot and the proceeds invested in Treasury notes to earn a higher return. But the key is that gold hedging involves the sale of the future mined gold into the spot market to generate cash now.This of course depresses the price.No other acommodity market operates like this because there is not enough above ground inventory to "lease" from.Only gold. What makes this doubly damaging is that the reason people buy gold for saving is undercut because as the over sold spot market declines the value of the holding of gold as a safe store of value also declines and people in India and China are seeing an erosion in the long term value of their savings and they begin to think that the many function of money that is to have as close as possible constant utiltiy or value is being lost . This can lead to the demonetization of gold and with the fifty years of above ground stocks this could lead to a complete collapse in the spot price as the worlds monetary holders rush to get out before it falls further. This fear is of course exactly what the manipulators of the spot price want because it allows them to then buy real money at a very low price and provide themselves with a true hedge from the collapse in the paper fiat stock and bond markets that they themselves have kited to such hysterical extremes. They are after all not stupid they know that when the 100+ P/E stocks crash there will be no where else to go except to real assets.They are using this manipulation to provide themselves with a lifeboat to escape the financial Titantic of their own creation. This is the same reason that the Nazis never invaded Switzerland during the Second World War,they neede an escape route should their plans fail. Gold at a low price and with control of the producers provides that route. Remember no one ever said Goldman Sachs was stupid, Barrick management maybe but not their bankers. The only lifeboat is gold and ABX has managed to sell theirs for less than the cost of production. Yes I know their average cost of production is $250/ounce and their hedges are at $385/ounce but if they really had any brains they would have covered over the last ten months when the spot price got below the worlds average cost of production. Any BS they feed their shareholders now about how hedging has been good etc. should be tested against the simple question. If Barrick mangement is so good at playing the world currency futures markets why are they working for American Barrick instead of running a multi-billion dollar hedge fund like Long Term Capital Management or Tiger Fund/ And if the market connections and savy of Nobel prize winners and the best traders on Wall Street can bankrupt their funds by taking the wrong side of these monetary futures bets what makes you think a bunch of ham handed mining execututives sitting in Nevada really have a clue where the dollar will be fifteen years from know or what the inflation affected cost of their own production will be five years from now?Get a grip!