Hi Spiny:

As the universe unfolds...more details come gushing out. The release says they "could" purchase gold.

A compendium of the day’s comments on Barrick

Excerpts from tonight’s Le Metropole Café

On Tuesday, Barrick Gold "shocked" us with the confession that they really couldn't "roll" their hedges forward forever. (Whodathunkit?!) The loss of $5.6 billion either made their creditors uneasy or the rocket scientists on their board of directors figured out that $1,000 Gold will soon be the "floor" and "it doesn't get any better than this" if you're short. Maybe their "Daddy" called? Maybe they got "the call" that the Gold is gone and the jig, I mean rig, is up?

It doesn't matter why they are closing their hedges, just that they are and of course "how". Their $5.6 billion loss (and only the loss) equates to about 175 tones or 5.6 million Gold ounces at $1,000 per ounce. But we know that these hedges for the most part were put on in the "$300's" so the actual amount of metal hedged was probably something like 250 tons or 8 million ounces. This metal cannot be delivered by Barrick because their metal is still in the ground. They surely can't go out and purchase this amount because on the margin it does not exist and is not for sale in this large a quantity. This will surely be a "cash settlement" or offset by more OTC derivatives. If I were king CEO of Barrick, I would just go out and buy shares of GLD since it is "good" (how laughable!) delivery on the COMEX and since GLD probably doesn't even buy physical metal, the tight physical market won't be affected adversely. How funny that "adversely" would mean rising prices!

So here is the #1,2, or 3 Gold producer in the world over the last 10 years who lost their butt's during the 2nd biggest (so far) Gold bull market in percentage terms in $ history. Good thing these rocket scientists aren't employed by NASA, the Moon landing would never have happened but "Journey to the center of the Earth" wouldn't be fiction. In any case, this 8 million ounces has already been sold years ago and absorbed into the market. When Gold was sold in the past, roughly 70% would end up in the form of jewelry so most of it isn't even in deliverable form. So basically, "poof" it's gone. This 8 million ounces will not be delivered, it will not change hands (it already has). Hedging is exactly what we knew it would be in a rising market.

Central banks are now turning into buyers, global Gold production is declining and expenditures for exploration have been paltry for years. China is prodding their 1.6 billion population to buy physical Gold and Silver. COMEX inventory may be stuffed with GLD shares so a fire at their depositories could be disastrous, and who knows for sure who really has what? It will all come down to physical supply and demand. We know that buyers today are wising up and requesting delivery of the real deal and at the same time we are finding out that supply that once upon a time was the real deal, is now of paper origin that foreigners will ultimately balk at.

If you can't see every piece in this rigged puzzle coming together now, you won't until it's too late. "Too late" is almost here so if you haven't figured it out yet you better hurry. Regards, Bill H.

Outside of the GATA camp, reaction to the Barrick news has been almost universally BEARISH because they say their buying is done and that is what pushed up the market over the past month. As far as their buying done, that’s debatable. Adrian yesterday:

“Barrick's deal represents a gold delivery DEFAULT. They are paying back cash. They are not paying back in gold.”

So, what buying?

Yep, living on Planet GATA certainly is different than living on Planet Wall Street. Whether gold sells off or not, what is striking is the lack of intellectual acumen among the gold herd pundits that inhabit their planet. They are like robots of the same ilk who understand a lot of the minutia of the gold market, but have zero grasp of the big picture and what is really transpiring … been that way for a decade now … which is why most of their gold price forecasts are $100 to $250 lower than where the price is at the moment….

09:38 ABX Barrick Gold increases size of previously announced equity secondary offering to $4.025B from $3.45B through RBC, Morgan Stanley, JPMorgan, Scotia ($39.30)
Shares remain halted for pending news.
* * * * *

Funny thing, it WAS an oops. Turns out the buyers of the “bought deal” panicked a bit, not used to taking on so much gold share exposure. They dumped the shares to “generalist” US hedge and pension funds in “ten minutes.” According to our guy, these entities like SIZE and SPEED when they move … Bing Bang Boom. They wanted what was available and they wanted right away, as it is their modus operandi.

ALL of the available shares went to US entities, as the deal was announced late in the afternoon when these firms' European clients were asleep. When the Europeans woke up, they went ballistic as they wanted in …giving the RBC, both Morgans and Scotia MUCH grief, foreswearing doing business with them again unless they were allowed to participate. Hence, the increase in the offering.

What intrigued our Café member was the extent of the demand for shares of a gold company. While these firms/institutions won’t mess around with many of the junior gold companies, he believes it is the beginning of a “trickle down” and accumulation of the shares of other major gold companies … which is a real plus for our sector any way you look at it.

Our guy also…

*Congratulated GATA for our efforts saying “we got them.”

*And a major reason for Barrick moving like it has is because of the bullion dealers' concern over their counterparty risk, especially in light of the comments by the Chinese they might just walk away from their own derivatives trades.

From Ed Steer:

"Experienced observers are quite shaken by the Barrick announcement. While there is a bullish long-term inference, there is the poor example of the company's early '96 buyback [not '94 as I said last night--senior moment!] and, of course, there is the probability that a good deal of the order has been executed [or front run]. UBS, which was making negative gold price noises yesterday, goes as far as to say: After a lot of consideration and thought, we now conclude that recent buying from Barrick probably contributed a lot to the move in gold over the past week... The performance of gold in European trading suggests that gold market participants have decided that Barrick bought all the gold it needed before yesterday's announcement and this event is already in the price... for now, we hold our view that gold is overdone at current levels." [I must, unhappily, agree - Ed]

Well, the Barrick story was all over the news yesterday. My first two offerings of the day deal with exactly that. The first was a story posted at mineweb.com. The author, Dorothy Kosich, said... "With Tuesday's announcement by Barrick that it was eliminating gold hedges and floating contracts, a 21-year old policy--which transformed the former one-gold mine company into a global gold mining success, but subsequently was derided by analysts, investors and GATA... may finally be put to rest." The headline reads "After 21 years, Barrick will finally wean itself off gold hedging" and the link is here.

The second story on this subject is from the globeandmail.com This story is also worth the read. The headline reads "Barrick raises share offer to $4 billion"... "Sources said that in meetings with investors, Barrick's CEO quickly came to realize that the hedge book was an enormous issue facing the company and should be eliminated. “Every institution Aaron met said, ‘Get rid of the hedge book,'” said one banker close to Barrick"... "Barrick is a gold company that has forged its reputation on clever financial engineering more than a belief in metal prices." [If you only knew the whole story, dear reader, you'd never own a share of that company. - Ed] The link is here.

Morning Commentary

Bill Cara

September 10, 2009

As traders, as long as we have the right to sell as well as buy, which is a right that we may not have for long if the nonsense in Washington keeps up, we can continue shorting the US Dollar and buying gold (and silver). But, we had better buy physical gold or unhedged miners of physical gold, because we don’t want a piece of paper that says its gold, but is really wooden nickels.

Take the case of Barrick (ABX). Yesterday they sold $3.5 billion in stock to raise cash to buy back their gold shorts (called hedges) because they cannot deliver physical gold. They cannot buy it in the physical market because the owners would only sell it for $1200, $1500, $2000, and much higher.

http://www.bloomberg.com/apps/news?pid=20601082&sid=aOtemPIX8MVk

So what’s Barrick going to do with the cash? They realize it has little value (the treasury rate is 0.1% return), so they are going to deliver this $3.5 billion stack of wooden nickels to the holders of their gold contracts, waiting for their gold. Even the world’s oldest profession won’t take wooden nickels, so, burn me once, shame on you; burn me twice, shame on me, now the gold futures market is going to die. Contract buyers will no longer trust sellers. And other than Barrick and a few other desperate mining companies, who are the sellers of these contracts anyway? Well, guess what, it’s Humungous Bank & Broker (HB&B), led by none other than Jamie Dimon, the JP Morgan CEO who, on behalf of his HB&B colleagues is Ben Bernanke’s puppeteer.