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: tyc:> who wrote (2801)	5/17/2002 10:46:57 AM
From: nickel61	Read Replies (1) \| Respond to of 3558

Basic to understanding Barrick's hedges or anyone's for that matter is to understand that the "hedge" is created by a short sale. They borrow gold and sell it into the spot market and with the proceeds from that sale they then invest in the bond portfolio. It is the computer modeling of the future interest rates they will recieve on this money that creates the "higher" price, or contango. This is their projection as to how much the short sale proceeds will earn in interest till the contract is closed by Barrick returning the gold from their future production and repaying the loan(to the bullion bank/central bank. Without the short sale they would have no proceeds to invest. Do you agree with me up to this point?

To: tyc:> who wrote (2801)	5/17/2002 10:55:39 AM
From: nickel61	Respond to of 3558

It is critical for all shareholders to understand that the hedges are created by Barrick going short gold by borrowing it from a bullion bank who in turn borrows it from a central bank. Barrick then sells this borrowed gold in the market at spot(some would argue therebye increasing the supply of gold in the spot market and depressing the gold price somewhat) and then has a contractual obligation to return an amount of gold equal to what they borrowed plus a lease rate factor (1% or 2%/year) to the bullion bank/central bank when they want it back. So a short gold position is established with every hedge that Barrick puts in place. A short like any other that must be repaid by delivering when the lender wants it back. The cost of providing that gold in the future to repay the short loan is an obligation that will have a cost even if only an opportunity cost and that is what the significance of the future market price of gold is. That is the revenue that Barrick will forego when it delivers the shorted gold. Now you were complaining about everyone on this thread having a closed mind. You wouldn't want to be acused of that yourself would you, so follow the explanation and ask questions if you don't understand something.