Gold News (?)

[cjppjc]

Re: Gold News (?)

Hah ! They started making noises about doing that some, or at least not adding more to them. But as all the news and reports above in this iTulip thread show, they still have billions of dollars of hedges, just took a several billion dollar writeoff to their profits marking some of those hedges to market, and just issued what might be the largest private equity sale in Canadian history in order to raise the cash needed to buy the gold intended to close out those hedges.

This is from Feb 07

http://www.marketwatch.com/story/new...e?pagenumber=2

Barrick said it had eliminated its corporate hedge book as of Wednesday. In the fourth quarter, it had reduced its fixed-price price corporate gold sales contract position by 1 million ounces, triggering a cost of $327 million, or 37 cents a share, against its gold sales.

[ThePythonicCow]

Re: Gold News (?)

This is from Feb 07

http://www.marketwatch.com/story/new...e?pagenumber=2

Barrick said it had eliminated its corporate hedge book as of Wednesday. In the fourth quarter, it had reduced its fixed-price price corporate gold sales contract position by 1 million ounces, triggering a cost of $327 million, or 37 cents a share, against its gold sales.

That word corporate is code for their non-project related hedging.

From Barrick Gold Hedges the Truth:

TORONTO (TheStreet) -- You can't say Barrick Gold (ABX Quote) told the whole truth and you can't say the company intentionally misled investors. The golden truth is somewhere in between.

On Wednesday, Barrick Gold announced it would issue over 94 million shares and use the capital to close out its gold hedges, fixed-priced contracts and a portion of its floating spot price contracts. Hedges allow a company to sell gold at a set price, which can guarantee a certain profit, but when the spot price soars the company's earnings power is capped.

Barrick's decision on Wednesday raised some eyebrows. Back in February 2007, Barrick announced that it eliminated all Corporate Gold Sales Contracts. Then-President and CEO Greg Wilkins said on the conference call that the "elimination of all non-project related hedge contracts allows the company to benefit fully from higher gold prices at its operating mines."

So when the company announced over two years later that it was closing out its hedges - again -- investors asked: Did Barrick lie to investors back in 2007?

The answer is, no, not technically. Barrick just did some "creative messaging," as an industry insider called it. The truth is in 2007 Barrick still had 9.5 million ounces of project hedges set at $340 an ounce and 1.6 million of floating spot price gold contracts which it planned to eliminate by the end of the second quarter. An industry insider said Barrick kept some projects hedged as a way to "help them finance their development stage projects [but] in fact they were an increasing liability with rising gold prices," Barrick's 9.5 million ounces had a mark-to-market position of negative $5.6 billion.

In 2007, Barrick threw around fancy words like corporate gold contracts and project sales, not necessarily to mislead investors -- but they definitely confused matters. A Haywood Securities analyst even wrote after a Feb. 23, 2007 earnings call that "Barrick's no-hedge strategy should start to deliver a better market valuation." But the truth was Barrick was never completely unhedged.

[cjppjc]

Re: Gold News (?)

That word corporate is code for their non-project related hedging.

From Barrick Gold Hedges the Truth:

Corporate hedge. How great is it to have your own dictionary? I never owned Barrick. Goldcorp and Agnico Eagle have always been my large minors.

[pwcmba]

Re: Gold News (?)

I seem to remember gold crossing $400 the first time in this bull market with the 1st ABX announcement of hedge closing/reduction.

[aaron]

Re: Gold News (?)

So, the amount of gold they must purchase over the next year is how much? And, how much might this move the market/deplete physical supply?

[ThePythonicCow]

Re: Gold News (?)

So, the amount of gold they must purchase over the next year is how much? And, how much might this move the market/deplete physical supply?

As quoted in some earlier reply above, Barrick will be needing 3 million ounces of gold, some of which can come from its ongoing mining operations.

By itself, not earth shattering.

But we also have:

• China rather obviously buying gold for its central bank.
• China recently legalizing (after a 60 year hiatus) gold possession by its citizens and publicly encouraging them to buy gold and silver.
• The Arabs opening a gold vault in Dubai and beginning to move their gold from New York or London to Dubai.
• Hong Kong opening a gold vault and welcoming large gold holders, especially in their region, to move their gold there.
• JPMorgan and HSBC rumoured to be short very large quantities of gold, which they might choose to cover, perhaps for the same reasons Barrick is covering.
• There may well not be anywhere near enough gold available on the market to cover all the open interest (COMEX options promising to deliver in the future, some of which futures may represent part of the GLD ETF's backing).
• P.S. As reported at http://english.caijing.com.cn/2009-08-28/110230655.html, China's State-owned Assets Supervision and Administration Commission (SASAC) has sent notice to six foreign financial institutions informing them that several state-owned enterprise will reserve the right to default on commodities contracts signed with those institutions. Some goldbug sites I read suggest that these defaulted contracts might include gold futures.
  

Barrick could be the canary in the (gold?) mine shaft.

The moving of substantial quantities of gold from New York or London to Dubai or Hong Kong would matter if some of that gold was overly "leased" in a variant of the fractional reserve system, as it would leave the Anglo bankers with fewer reserves to cover additional demands for physical delivery. Gold futures and ETF's, unlike vault stored serial numbered bars, don't segregate specific bars for specific owners, so are susceptible to the same fractional reserve policies that large gold storers have long used. It is concerns such as this that are part of the motivation behind recommending that one use caution in determining how to store one's gold. For example, from what I can tell, iTulip recommends BullionVault or (I presume) personal physical possession, but does not recommend the GLD ETF.