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.

Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: LLCF who wrote (43826)	1/4/2006 3:42:53 PM
From: mishedlo	Read Replies (2) \| Respond to of 116555

The article is crap but not total crap. Barrick is not losing billions as the author suggests it is losing billions in potential profit. There is a huge difference. That said, Barrick can indeed get in trouble if mining costs rise above prices they forward sold at. That is not inconceivable. Furthermore, I agree that Barrick was stupid in not massively covering their hedges at numerous opportunities. Barrick might have the best forward contract in the business, but at some point they still have to deliver. What will their production costs be at that point in time? That article way overplayed the hype, while missing what I feel is the big issue totally (not the POG itself but rising production costs). I have little respect for Barrick and at some point they may go under because of what they did but for far different reasons than the price of gold went up costing them billions of dollars. Mish

To: LLCF who wrote (43826)	1/4/2006 4:26:28 PM
From: Chispas	Read Replies (1) \| Respond to of 116555

Yes, it is old news about Barrick's hedges , with the recent rise in POG, it may be considered 'new' news.... "Barrick simply assumes that what goes up must come down. If the gold price goes up, say, $200 per ounce, then it is duty bound to come down at least that much in due course. Those with financial staying power, such as Barrick considers itself to possess in good measure, will be able to ride out any storm caused by temporary spikes in the gold price. They can roll over all futures contracts showing a loss, several times if necessary, until the gold price comes down again. Barrick and others will, therefore, always be able to close out their deals at a profit. The truth remains, however, that all Barrick has accomplished is to have swept margin calls on its gold-borrowings under the rug, thereby concealing the potential liability from its shareholders and creditors. Therin lies the fraud, which SEC and other watchdog agencies of the US government should uncover and expose. Instead, they adopt the 'hear no evil, see no evil' attitude. Barrick wasn't around in 1968. But suppose, for the sake of argument, that it was. Assume further that Barrick had sold borrowed gold at $38 per ounce (which may have appeared as an incredibly smart thing to do that year to the gold producers of the day). In that case Barrick would still be rolling over its gold loans in the forlorn hope that the price of gold will be good enough to drop below $38 per ounce, in order to enable Barrick to unwind its losing position with a profit. But in fact, after 1968, the year the US Treasury defaulted on its obligation to pay its creditors (foreign central banks with short-term dollar holdings) in gold at $35 per ounce as contracted, the price of gold took off never to come back again. Barrick could still be holding the bag of losses, and keep reporting huge profits, because the conspirator banks allow it to roll over its short position in gold at $38 per ounce. It may be pointed out that today the position of the US Treasury vis-a-vis its foreign central bank creditors is far inferior to its position in 1968. It has happened any number of times in history that the gold price took off; never to come down to the level it has started from. For this reason, any accounting assumption that a commitment to deliver gold at a future date can be closed out profitably in the future (if only one is willing to wait long enough) is simply fraudulent. It should never be allowed in a society with self-respecting legislators making meaningful contract laws. And the fraud should be exposed by self-respecting accountants and other watchdogs of fair play" (Pages 162 - 167, "Gold Wars")