This is From GATA

2:45p EST Sunday, February 13, 2000

Dear Friend of GATA and Gold:

As you'll see from the article below, even The New York Times took note of gold and the hedging issue today.

Is it time to sell already?

Just kidding!

We're not on the cover of Time yet, but things seem to be moving our way. The forces that want gold pushed down are retreating and close to being exposed.

Please post this as seems useful.

CHRIS POWELL, Secretary/Treasurer Gold Anti-Trust Action Committee Inc.

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BARRICK ALTERS POSITION ON HEDGING

By Jonathan Fuerbringer The New York Times Sunday, February 13, 2000

http://www.nytimes.com/library/financial/investing/021300invest-gold.html

When Barrick Gold, the most successful hedger in the mining business, curtails the practice, that's news. And when the same company gives up some of its locked- in gains to make a bet that gold will rally, something has changed in this precious-metal market.

So what is Barrick up to?

Barrick, based in Toronto, says it is trying to satisfy its shareholders, some of whom think hedging is a sin, although the practice allowed Barrick to produce record earnings last year as the price of gold first hit a 20- year low and then finished 1999 up just 40 cents an ounce.

"We did it for the benefit of our shareholders," said Randall Oliphant, Barrick's president. They need it. At $18.31 on Friday, the stock is off 24 percent from September, when gold prices surged on the news that 15 European central banks would restrict their gold sales. A gold rally would also help company employees with stock options. More than half of Oliphant's 825,000 stock options are still out of the money.

But Barrick is also falling into line with the more militant gold producers, money managers, and investors who argue that to get gold prices higher, producers have to support the price of gold themselves. "We want to be clear about the need for the industry to show leadership and confidence in gold," said Jay Taylor, the president of Placer Dome, as the company announced its own hedging pause on Feb. 4.

Confidence is expressed by not hedging, which among gold's true believers is just as dirty as betting directly against the price of gold. Gold producers hedge by selling borrowed gold to lock in the current price and then enhance that by investing the proceeds in government securities. If gold doesn't rise faster than the rate of interest they are earning, the producers come out ahead.

A reduction in producer hedging, the argument goes, would stop the selling of borrowed gold to lock in prices. In 1999 a net 4.3 million ounces of gold were sold by producers to hedge, equaling about 10 percent of the total gold supply, according to Philip Klapwijk, managing director of Gold Fields Mineral Services, a precious-metals research firm based in London.

He now believes that, over all, producers will do no net selling of gold for hedging purposes in the first half of this year. Placer Dome, for example, will forgo its plans to sell two million ounces of gold for hedging this year.

What is unclear is how much Barrick's and Placer Dome's reductions in hedging -- and those of other producers -- will change the outlook for gold. Will this concerted effort only get the metal safely above $300 an ounce, or can it push the price even higher?

That is important. If gold, which was at $313.50 an ounce in the futures market on Friday, doesn't rise much more, Barrick's gold bet may not look so good.

Hedging each year's production -- especially at prices that are well above the going rate for the metal -- seems as if it would satisfy investors. Indeed, Barrick has netted $66 an ounce more than the annual average spot price of gold for the last 10 years.

But gold investors want something different, as some of them made clear in a survey taken by Barrick last year. They want a company's earnings to respond quickly to a rise in the gold price, although they often seem to forget that this means it would respond just as quickly to a decline.

In that way, they can effectively bet on the price of gold. And they hope they can get an even bigger boost through the stock price, because a dollar increase in gold typically goes directly to the earnings of a company.

This investor preference is seen in a comparison of the recent performance of Newmont Mining, which is not a hedger, and Barrick. Since the gold rally began in August, Newmont stock is up 24.4 percent. Barrick, which had a guaranteed price of $370 an ounce this year, is down 1.7 percent. (Barrick, however, has trounced Newmont over the last decade.)

So Barrick moved to please its investors by betting directly on gold through call options. Barrick will get a dollar-for-dollar jolt to earnings if the gold price moves above $319 an ounce after March 1 this year and $335 next year.

Barrick paid for these options by giving up some of the guaranteed returns that had been locked in through its hedging. The options cost $6 an ounce for 2000 and $12 an ounce for 2001.

This means that the price of gold has to rise over $325 an ounce this year and $347 an ounce next year before the company will make more than it would have made without the options.

Barrick's investors, Oliphant, explained, "want a certain amount of assurance -- and a lottery ticket."

-END-

-- Zdude (zdude777@hotmail.com), February 13, 2000

Answers

Link off

-- merville (merville@globalnet.co.uk), February 13, 2000.

What a slanted article! They make it sound like Barricks's is just doing their customers a favor (at their own expense), when the fact is that gold demand is so high worldwide that they are losing their shirts if they don't change their ways.

-- Y2kObserver (Y2kObserver@nowhere.com), February 13, 2000.