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

To: nickel61 who wrote (2337)	4/4/2002 9:28:04 AM
From: Tommaso	Read Replies (3) \| Respond to of 3558

If a gold company has enough reserves and enough production to honor its hedges as they come due, why should higher gold prices hurt the company? Yes, they will lose the income they would have had, if they had not hedged. But why can't they satisfy the hedges out of their own production rather than being forced to buy in the the hedges? In this case, it would seem to me that hedges would be a very strong incentive to operate as efficiently as possible and the produce gold at the lowest possible price. Now of course, if a company has crossed over the line into selling speculative hedges beyond what it can physically produce, that could be a recipe for bankruptcy. Also, if inflation made it impossible to hold down production costs in the nominal currency in which the hedge was established, that could hurt the company. I admit that I don't really grasp all the implications of hedging, except that it's clear that an unhedged company immediately gets maximum benefit of any price rise.