Tuesday, December 1, 2009

Smart move? Gold miner eliminates hedges, expect only higher gold prices

Remember the oil bubble of 2008, the hedges, the producers drunk on unimaginable returns - which culminated last week with the default of Dubai?

So how smart is it to drop all hedges in a business relying on fluctuating prices of trade-able goods? Yes - many analysts would suggest that the outlook for gold prices is great, does that mean its time to bet the farm?

Is this move temporary? Simply eliminating OLD and losing hedges?

What does it mean to the private citizen? Time to buy the commentary and be a 'gold believer'? Are we at the first leg of a long rally in Gold, or at final stages of a bubble? (Think about it)

Barrick Gold eliminates all gold hedges
Barrick Gold Corp. on Tuesday said it completed the elimination of all gold hedges in an effort to fully gain from surging gold prices.

Gold hedges are contracts to sell gold ounces in the future at a fixed price. By eliminating its gold hedges, Barrick sets itself free from past commitments to sell gold at prices that now seem unusually cheap.

Gold has become a safe haven for investors moving away from the weakening dollar, a shift that has pushed gold prices to record highs. The Canadian gold mining company wanted to benefit from these climbing prices -- as it expects gold to remain strong -- so it unwound its gold hedges.

"Our positive view on the gold price led us to accelerate the elimination of these contracts ahead of the schedule we had established," said Aaron Regent, Barrick's CEO.

In September, Barrick announced its plan to eliminate all of its gold hedges within 12 months. It estimates a final $300 million fourth-quarter charge as a result of the change.

Looking ahead to 2010, the company expects gold production to grow between 7.7 and 8.1 million ounces, with lower total cash costs than 2009.

Doesn't this news bit at least eliminate the 'peak Gold' theory? (which is a part of the rally)

My opinion: Gold is a multi decade hedge, never to be owned at more than 15% of net worth. When markets collapse, gold goes with them - and most trades eventually unwind into Dollar. Economists have pointed out to the risk of a 'Wall of Money', carrying away from current trend of betting against the Dollar - and causing huge rise in worth of Dollar - despite Governments' irresponsible debt and expenditures.


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