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

To: nickel61 who wrote (1681)	12/30/1999 10:04:00 AM
From: Enigma	Read Replies (1) \| Respond to of 3558

Investor-ex, Ersch (sp?), Hutch. anyone? It seems that the argument starts off logically - but disintegrates into emotionalism? According to you Barrick does not sell forward at all - but borrows from a bullion bank and sells into the spot market, investing the proceeds into (its own) MM fund. What happens to the gold it produces? 3.5 million ounces a year -is this sold into the spot market too? If this is the case some of the proceeds must go to paying down the loan from the bullion bank. Or is some of the gold withheld from the spot market and delivered to the bullion bank?

To: nickel61 who wrote (1681)	12/30/1999 11:19:00 AM
From: nickel61	Respond to of 3558

Post #1681 without typos. I think it is important that everyone understand as much as possible about the argument so I am correcting my mistakes to make my meaning clear. We have finally found the source of our argument. 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 borrowing 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 quantities 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,or foreign exchange, with other countries should something go wrong with the paper currencies(foreign exchange) they are holding )in their reserves to support their own currency in circulation. They figure the fiat currencies are so strong now adays that the actual gold bullion is unlikely to be needed so why not lease it and earn an interest rate of 1% by lending a portion of it out. The Bullion Banks (who have superior credit ratings )are the immediate borrower from the Central Banks and they in turn "lend" or lease it to a speculator like the 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 (gold not mined yet but to be mined in the future when the delivery will be required to repay the Central Bank the gold it lent out) mined gold into the spot market to generate cash ,now.This of course depresses the price.No other commodity 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 main reason people hold gold as saving is undercut because as the over-sold spot market declines the declining gold price puts into question the wisdom of the holding of gold as a safe store of value.So as the gold price declines the monetary value of holding gold as money also declines and people in India and China begin to fear that they will see an erosion in the long term value of their savings.The main function of money is to have as close as possible a constant utiltiy.This means that for anything to be veiwed as money it must be percieved by all parties as holding as much of its value as possible. Under cutting the ability of gold to hold its value will lead to a reduction in peoples willingness to hold it as a monetary store of value. 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 nowhere else to go except to real assets.They are using this manipulation to provide themselves with a lifeboat to escape the financial Titanic of their own creation. This is the same reason that the Nazis never invaded Switzerland during the Second World War,they needed an escape route should their plans fail. Gold at a low price and with a small group of insiders in control of the gold producers provides that future escape 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 their 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(which is what they are doing when they chose to leave their future sales in place when the spot price is lowere than the cost of producing the gold)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 even with the market connections and savy of Nobel prize winners and the best traders on Wall Street,like these hedge funds have, these same hedge funds can bankrupt their shareholders by taking the wrong side of complicated 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! 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