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 : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: tyc:> who wrote (60438)	11/2/2000 6:12:58 PM
From: d:oug	Read Replies (1) \| Respond to of 116764

wmchen, Please help this thread understood "... Australian insist on hedging in $A" Others please help, as this might be the top of an iceberg that the gold market is steaming full speed ahead at. To keep the balling I include here a reference to an article on this topic from the Le Metropole Cafe, and since I can not include that article since its a pay to view via subscription, I will only highlight it focus and include one fact that it seeems to identify that may have not yet been mentioned here. I'm not skilled in business or economics so it may have already been factored into this threads discussions, and if so please say so. "... not only did they sell forward but they locked in the exchange rate as well..." LeMetropoleCafe.com Owner, Bill Murphy Chairman of GATA The Kiki Table Potpourri Topic du Jour GOLD STOCKS November 1, 2000 Professor von Braun The Rocket School of Economics [Start.] Certainly since early in 1997 owning shares in gold..... But are they? Or is the worst yet to come? Will a good buy become a goodbye? Not so long ago it was relatively easy to understand a gold mining company..... Now things have changed, really changed. The complexities of the paper gold market have spread to mining companies and even before one invests in a gold producer the criteria required to make an accurate assessment of a companies prospects has grown. The first question that needs to be asked is "does..... ... the widespread use of derivatives, the amount of paper gold, the inability of demand to affect price and further central bank sales... ... prudent to assume that the worst is... Also worth keeping in mind is that bear markets..... ... not seen this yet, although we are getting close..... The second question that needs to be asked is "are you buying a mining company or a hedge fund?" What happened to Ashanti and Cambior last October was an early warning signal about the perils of hedging and the negative effect it can have on shareholders, by virtue of a collapsing share price. Since that time we have had the usual ridiculous press releases coming from some mining companies that are supposed to inform the shareholders, but are really not other than a response to the times. Of course a CEO is going to say, after being asked 5000 times, that the company..... The bottom line is that they can’t..... Any company that has a hedge position is involved in the derivatives business. They can no longer deliver into these positions with..... The idea of a mining company buying gold on market to eliminate a forward sales position is, with a few notable minor exceptions, a myth..... The physical gold required is simply not..... Unless a company’s hedge book is clearly understood and the company is clearly telling the truth in terms of the extent of its position, they are best left alone. The next question that should be asked is what is the extent of the company’s debt? Some mining companies have debt levels..... Even the comment that they have only hedged months production and are not at risk is a fallacy..... Mining companies located in the US are most at risk from..... Companies located in South Africa are being helped by..... ... while companies in Australia should be benefiting from the weakness of the Aus $ and aren’t. The Australian gold stock index is telling us..... ... given its failure to respond to the gold price in rising Aus $’s. Rumors about several Aus gold producers having problems with their hedge books continue to appear. They also appear to be currency related, not only did they sell forward but they locked in the exchange rate as well, in some cases when the Aus $ was at .65 cents US. Now it is struggling to stay above .52 cents US, a 20% decline..... ... It may work for a while but at some stage, as the derivative debacle unravels concerns will be raised by political opportunists..... Yes, there is money to be made in gold stocks but, given the uncertainty surrounding hedge books and the fact that it is not easy to extricate ones production from a forward sales position, it is perhaps better to..... Some Wall Street brokerage houses are, currently, even recommending gold stocks to their clients, while their bullion desks are selling the metal down. Whether they have spoken to their respective analysts or not I don’t know, but I do know that the back room boys are working overtime to come up with new computer models that suggest arbitrage opportunities, mostly for * account. Don’t be surprised if the front room is unaware of the back rooms strategy. [End.] Professor von Braun can be contacted via email at profvonb@aol.com

To: tyc:> who wrote (60438)	11/2/2000 10:55:38 PM
From: goldsheet	Read Replies (1) \| Respond to of 116764

> Surely it is because their expenses and costs are Australian dollars. They are protecting themselves from a relative fall in the dollar that would see their costs increase relative to their revenue. Since their revenues are based on $US gold sales, it would make sense for them to either hedge gold in $US -or- do a combination of hedging gold in $AUS AND hedging the $AUS vs. $US. By only doing half, gold hedging denominated in $AUS, this leaves then open to currency fluctutations. > You see the same thing in Canadian base metal miners. They hedge against an increase in the Canadian Dollar by forward selling the US dollar. This currency hedging makes sense since cost are in $C and revenues for base metals are priced in $US. The Australian should be doing the same thing, they should also hedge the currency in addition to the metal.