: Gold, silver fall on Barrick news
By Darcy Keith, Bridge News
New York--Feb 7--COMEX Apr gold futures made a dramatic turnaround in
Monday's session, starting the day up nearly $10 at 4-month highs and
ending down $8.5, or 2.72%. The session began with follow-through buying
from Friday, but the rally turned sour when Canada's Barrick Gold outlined
adjustments to its hedging program that were less substantial than what
was anticipated.
* * *
Apr gold settled at $304.5, close to its session low of $302.0, and a
remarkable distance away from its day's high of $326.9, its strongest
level in 4 months.
Following Friday's announcement from Canada's Placer Dome that it was
suspending its gold hedging program, the market had been anticipating a
similar announcement from Barrick Gold Monday. Some analysts said on
Friday they believed such an announcement from Barrick would be imminent,
and a financial strategy presentation the company had scheduled for Monday
further raised speculation.
But Barrick, which did outline major changes to its gold sales
program, did not go as far as Placer Dome went in suspending hedging
activities.
Barrick said it was making changes that would benefit earnings and
cash flow beginning at a spot gold price of $319 per ounce for 2000. The
upside will be added to its assured floor price of $360 per ounce, the
company said.
The company will nearly halve its gold ounces under its hedging
program, reducing long-term call options sold and spreading out delivery
of spot-deferred contracts. (See story .18586)
Barrick also said it expects to produce 5 million ounces of gold in
2003 at costs of US $145 per ounce, compared with gold output of nearly
3.7 million ounces at cash costs of US $124 per ounce in 1999. (See story
.18589)
While Barrick's restructured hedge book had some bullish elements,
gold prices had been bid up in anticipation that the company would take a
more aggressive approach.
"Barrick has basically said they are committed to their hedging
program, so if the price comes up they can put more hedges on. Plus
they're saying they're planning to increase production," said one trader.
"I think the market was long in anticipation there would be little future
hedging."
Leonard Kaplan, chief bullion dealer with LFG Bullion Services, said
the negative reaction was of no surprise. "People were expecting the
world. I still think we're about $10 too high," he said.
Bill O'Neill, futures strategist with Merrill Lynch, agreed that
prices may have been getting ahead of themselves, contending that there is
little physical demand at prices above $320 and recent inflation jitters
really no longer pertain very much to the bullion market. "We're not at
the point where gold is re-harnessing itself as a monetary asset," he
said.
But the restructured Barrick hedge book, combined with Placer Dome's
exit of its hedging program, should allow for gold to trade at marginally
higher prices than what would otherwise be the case, said O'Neill.
"This is all part of the process of the market putting in a bottom,"
said O'Neill, adding that gold is probably not yet in a major bull market.
O'Neill said gold is seeing a huge amount of volatility and more can
be expected. "I think the end result is this will help the price of gold,
and if nothing else, it doubly reinforces the idea that the market has
bottomed out."
Traders linked gold's early rally to follow-through buying interest
from Friday, when Apr settled up $23.10, or 8%, to $313.
"A great deal of short-covering," in the words of one dealer, helped
to fuel the advance, as rumors persisted there would be more producer
buybacks and suspension of hedging books.
The dealer said the market charged higher on the open as "emotions
were running high" following the big move on Friday, but locals were quick
to press the market lower.
One trader said Monday's early morning rally was "a matter of selling
rather than any new buying interest."
Even before the Barrick announcement, gold was trimming its early
gains, perhaps in part because of thin conditions but also due to
perceptions that the recent gains can not be sustained.
Kaplan said the market overextended itself and the announced and
rumored producer buybacks do not justify the higher trading ranges.
"While I remain bullish for gold for the year, I think it's come too
far, too fast," said Kaplan. "I think we'll see longs in the market take
some profits."
Kaplan noted that gold lease rates this morning rose by about half a
percentage point at the long end of the curve, suggesting a positive
demand outlook.
An estimated 110,000 futures contracts were estimated to have traded
on COMEX. (See .2112)
Mar silver settled down 28.7c at $5.285 an ounce, marking an almost
exact reversal of Monday's rally of 28.4c.
Traders said the metal was simply following gold's coattails. The
metal was up sharply Friday when gold rallied, and now has fallen back
just as steeply, as the metal has not been reacting much to its own
fundamentals, traders said.
"Silver was up a creek without a paddle," commented one dealer.
Meger said the metal was susceptible to a retracement, as the metal
"does not have the fundamental or the technical picture to drive it higher
at this point.
O'Neill said Mar silver looked overextended when it broke through
resistance--and the top of its recent trading range--at $5.50. Mar had
reached as high as $5.60 Monday.
The palladium and platinum markets both saw big price movements Monday
as well, with both hitting contract highs. Mar palladium settled up $15.90
at $540.9 after hitting an
all-time high of $544.0, while Apr platinum settled down $5.2 at $474.3
after reaching as high as $490.0.
The metals continue to be supported by physical tightness amid a lack
of long-term shipments from Russia. Early in the morning, the metals were
also said to have moved partially in sympathy to the rise in gold.
More to follow...
(c) Copyright 2000 FWN
futuresource.com |
