Posted on 09/14/2009 10:11:48 AM PDT by FromLori
Barrick Gold has been hedging its gold production by selling futures contracts, thus locking in the price a year or more in advance of the physical gold being mined. This is a great strategy when gold is falling in price. It makes no sense when gold is in a bull market.
Gold has been in a bull market for close to 10 years. It has climbed from a low of $255.10 an ounce to over $1,000 an ounce.
Thus, Barrick Gold executives look pretty much like idiots. What were they thinking say back in 2003, when all the key players new gold was the place to be.
Finally, $750 per ounce later, Barrick will no longer be hedging its production. But, get this, Barrick has announced it is going to raise up to $3.5 billion through a share offering that will eliminate most of its remaining gold hedging contracts. In other words, current shareholders will be diluted as a result of corporate ineptness. They need the money to buy back the hedges they have on.
The company said it would take a $5.6 billion charge against third-quarter earnings to reflect a change in accounting treatment of its hedging contracts. The current hedging book covers 9.5 million ounces, or significantly more than Barrick’s projected 2010 output of between 7.7 million and8.1 million ounces. They also have floating contracts that are underwater to the tune of near $2 billion.
Bottom line, you have a gold production company that has been in effect shorting gold. In a bull market for gold, who would buy such a stock?
For what it is worth, and this has to be scary for the gold price short-term, if you think Barrack is run by a bunch of idiots. But, Barrick is now bullish on gold. Barrick explained its move by pointing to an “increasingly positive” outlook for gold. It added that it expects “global monetary and fiscal reflation will be necessary for years to come, resulting in an increased risk of higher inflation and a future negative impact on the value of global currencies”.
Related for those interested
http://www.freedomsphoenix.com/News/057491-2009-09-14-on-the-edge-with-rob-kirby.htm
I don’t get why this matters - sure, they’re not as profitable as they can be, but as long as they’re still producing the gold vs. arbitraging it, then why the issue?
Sounds like they’re playing games and leverage.
My broker just bought me some more gold stock. I would bet the economic tea leaves are not looking to good for the future under Obama.
I was just notified of a class action suit I can participate in based upon my purchase and ownership during a specific interval of time.
Important Summary Notice Regarding All Persons Who Purchased Securities of Barrick Gold Corporation
I submitted my paperwork to the shysters, but I'm sure I'll never see a penny.
It’s never stupid for a producer to hedge — for at least a significant portion of their production.
If they don’t hedge, they’re speculating, plain and simple. By not hedging, they’re betting that the prices will be higher than what the futures market is predicting. When you bet against the futures market, you’re speculating.
Thank you!
You do realize that gold is going up mainly because our dollar is going down, don't you?
Also, because obama is going to need to prop up the dollar, and soon, that owning gold may be one of the worst things you can own?
Remember Roosevelt's gold confiscation act of 1930. Don't think it won't happen again. It's about the only option Obama has left, and you can bet a sudden drop in gold prices will precede him enacting a gold confiscation act. Obama will conficate all the gold at that depressed price, then miraculously it will soar back up again, giving Obama the money he needs (stolen from you) to implement more of his marxist plans, and effectively rooting out hidden wealth that he couldn't get hedging other markets, ensuring he has sucked every bit of wealth that could be used to finance new capitalism.
To a producer knowing for certain the future price can be more valuable than chance of making more at delivery time. That is why futures markets were invented.
You think Obama can ‘prop up the dollar’ and ‘bring down the price of gold’? Given all the foreign activity in both markets? There was nothing even close to this when FDR swindled America with his confiscation. And there was nothing even close to the armed and ready anti-government populace that today’s president faces. So good luck on confiscating anything. The next march on Washington would be armed.
THAT was the time to buy gold, not now.
You can still make some money on silver, but it has the same risk of being confiscated by government as gold does.
What are you talking about? The exact same conditions exist making gold confiscation a very likely threat.
And you got it wrong, gold will drop first, then Obama will confiscate it,use it when it rebounds to create more dollars, not prop them up.
see http://www.freerepublic.com/focus/f-news/2339089/posts
Gold investors warned to liquidate after ‘buying frenzy’
“The exact same conditions exist.”
It is predominantly conservatives who hold gold, and the torrent of advertising on Fox and talk radio is evidence of that. So you think that today’s conservatives, who also were the ones who just purchased millions of guns and billions of rounds of ammo, will allow a commie President to confiscate that gold? And you think that a similar situation existed in the 1930’s? Wow.
China is bullish on gold oil and commodities...is buying them with US dollars and is getting rid of US Dollars due to the derivatives overhang
China refuses to be Wall Street’s fool and Washington’s fool as the Fed destroys our currency-———>>>
Mountain Of OTC Derivative WMDs Waiting To Explode
Posted: Sep 13 2009 By: Jim Sinclair Post Edited: September 13, 2009 at 4:56 pm
Filed under: General Editorial
Dear CIGAs,
Size and major risk have been confirmed for those with the eyes to see and the ears to hear. It is exactly what I have been teaching.
Translation:
Unless financial contracts have standards there is no way to clear them.
Unless financial instruments have accurate means of daily valuation, there is no way to clear them.
OTC derivatives outstanding from 1991 to 2008 have no standards.
OTC derivatives outstanding from 1991 to 2008 have no sound means of true valuation in any time frame, certainly not from day to day.
With this being the incontrovertible set of facts:
The Bank for International Settlements is for the first time proposing the world’s central banks take over the financial risk of the entire mountain of more than one quadrillion one hundred and forty four trillion dollars (valuation before the change to “value to maturity” method valuation of nominal value of OTC derivatives) of OTC derivatives created from 1991 to 2008.
The reason is simple. This unchanged in size mountain of weapons of mass financial destruction as still sitting there ready to explode in the second chapter of the greatest double dip depression of 2007 – 2009.
Can you blame China for simply saying no to Western crack cocaine finance?
Now do you understand why China is buying raw materials, entering joint ventures and purchasing energy and raw material companies while utilizing their dollar instruments for payment?
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