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

To: Richard Humphrey who wrote (4324)	12/16/1997 9:41:00 AM
From: Greg Ford	Read Replies (1) \| Respond to of 116753

Gold producers will use a number of means of selling gold forward. Normally they will enter in to a forward contract at the current spot price and accrue contango (interest rate less the leasing cost of gold). These spot deferred contracts can be rolled in accordance with the credit lines that the producer has with its counterparties. For example assuming gold is $350 and the contango rate is 4%, a spot deferred contract at the end of year one is worth $364. Now lets assume that at the end of one year the spot price of gold is $300. The producer can realize a profit of $64 by buying back the position (remember what the producer has done is borrow gold and sell it in to the market and invest the funds in interest bearing instruments). There were some producer buybacks in the $330 range (ie. JCI and Newmont). Pegasus may have to buy back its hedge book because of other debt which needs to be repaid. Other producers may reduce their hedge books if they shut down or curtail production. The banks may require them to close out contracts if they do not have the reserves or gold production to meet the contracts. This may explain the action by Kinross. Munk has stated that Barrick will not buy back its hedge book. Hope this helps. Greg