The Golden Age Begins

Silver and gold are sexy again. The price of gold reached an 18-month high today, while silver reached a 13-month high. At $1,006.40 an ounce, gold is nearing the high of $1,033 an ounce it reached in March 2008, during the very timely and well deserved death of Bear Stearns. Silver punches in at $16.75, still short of the $17.01 the precious metal of 25th anniversaries reached in August 2008.

By comparison, the U.S. Dollar Index is a truly terrifying sight. The greenback has been dropping like Trevor Berbick since March, and the fall is picking up speed again this month. Yet the deflationary paradox continues: Both the consumer price index and the producer price index are still falling. (New numbers for both indices will be out next week.) Meanwhile the stock market, powered only by sheer Mr. Magoo-class obliviousness, remains strong, with the Dow Jones Industrial Average still well above 9,600. Yield on the 10-year Treasury note (supposedly an inflation indicator) remains low as well.

In tangentially related news, the price of food also shows no sign of strengthening in the U.S., as yields for an assortment of crops look to be larger than usual, with no clear evidence of increasing demand. (Performance may vary if you're carb-free.)

I have thrown out any number of crackpot theories to explain why the dollar continues to buy more while being worth less. (Or just worthless.) Many of you have upbraided me for my ignorance, madness and funny smell, but I don't think I've managed a stretcher on the order of Bloomberg's explanation for the price of gold: that it's rising on the shocking and totally unprecedented news that Israel and Hizbollah are fighting.

Goldbugs, I cannot follow you, but I wish you well. Hold onto your krugerrands. The price of gold has never gone to zero. It has never gone to zero!

Comments

[Johnny Longtorso]

If the govt confiscates your gold like FDR did, its value to you goes to 0.

[sage]

I thought I had seen something about the price having not only to do with the drop of the dollar but the fact that China has been buying it like crazy. Let's see...ah, here we go:

http://mineweb.co.za/mineweb/view/mineweb/en/page72068?oid=89018&sn=Detail

[Warren]

I've got my pot buried in the yard.

[Douglas Fletcher]

Gold never goes down to zero, but it does sometimes go down below where you bought it. I'm going to guess that wouldn't feel very nice.

Me, I invest in lentils. They're nutritious, they last forever & you might even be able to use them for buckshot if it comes to that.

[Citizen Nothing]

Warren -- no, no -- just the SEEDS, dude.

[ABC]

I put more faith, with regards to tracking inflation, to long-term trends rather than blips up and down over a few month or few year period. And when hyper-inflation happens it usually happens rather quickly. Gold still seems the best barometer in terms of tracking inflation than a government run metric. Getting the government and government-private hybrids out of the money issue would be best. Let the market decide the currency situation; unless you're all a bunch of fucking pinkos.

[Citizen Nothing]

Interesting bit in SmartMoney, of all places.

[John]

Gold isn't the only commodity in the world. It's price is not completely based upon the percieved value of the dollar. It is also driven by supply and demand. Speculation or disruptions in supply can drive gold prices just like they can drive oil prices.

Yes, gold going up is potentially bad news for the dollar and an indication of inflaiton. But, it isn't the only metric. If inflation is coming, the dollar will buy less oil, lumber, orange juice and Bankok prostitutes. In short, until gold prices are accompanied by actual inflation in other things, I am not going to panic.

[Xeones]

You can't eat gold. Well, you can, but there's not much point to it.

[nobody special]

Shouldn't the picture be of the snowman from Rudolph the Red Nosed Reindeer, and not of Yukon Cornelius? The snowman sang about silver and gold.

[Rich]

You can't eat gold. Well, you can, but there's not much point to it.

I thought the point of Goldschl?ger was that you can *puke gold*!

[cleavingSpace]

And gold will never be a currency, so it will always be more worthless than the paper money safe haven it represents. Gold could go to $5000 and oz, and you still couldn't take it into a supermarket and buy a loaf of bread with it.

[Pro Libertate]

R C Dean is rolling in his piles of bullion at his undisclosed location (in Texas) as we speak.

[Pro Libertate]

cleavingSpace,

Bring me an ounce of gold, and I'll get you that loaf of bread.

[cleavingSpace]

Pro Libertate,

So clever! You undoubtedly would only want the ounce so you could trade it for ~1,000 in cash, and then go buy something meaningful with it. I doubt you'd go bury it your backyard, because it wouldn't be buying you much.

Point remains, no matter how much gold is "worth", it will never be a currency again.

[Pro Libertate]

I wasn't arguing with your point so much as I was seizing the potential arbitrage opportunity. I've got a wife and four kids to feed, man.

[ABC]

"Point remains, no matter how much gold is "worth", it will never be a currency again."

http://www.guardian.co.uk/world/video/2009/feb/11/zimbabwe-gold-panning-starvation-food

Why won't gold ever be a currency again? Or for that matter why won't a commodity backed money ever be a currency again? Once more people begin to realize that the government is a horrible guardian of the value of money they will begin to move towards to the direction of commodity based money. Please explain why a fiat based system fractional reserve system is better than a commodity backed full reserve based system.

[Phineas Goldshitter]

Eat gold? I SHIT gold! Ha ha ha!
(arrogantly strides away...)

[Pro Libertate]

I don't see gold as an actual currency coming back, simply because electronic money is so fun and easy to manipulate. Gold'll rip a hole in your pocket, anyway.

[Russ 2000]

I don't consider myself a gold bug, in fact that best thing to happen to gold is governments no longer fixing the price of it. But to have a couple percent of your wealth in physical gold isn't a bad idea. When you're over 10 percent, then it's a bad idea. Don't put all your eggs in one basket, ya know.

[Tulpa]

You undoubtedly would only want the ounce so you could trade it for ~1,000 in cash, and then go buy something meaningful with it. I doubt you'd go bury it your backyard, because it wouldn't be buying you much.

The point is, if and when gold goes to $5000/oz, the ounce you bought for $1000 will be tradeable for $5000. You're much better off with the gold in that case than you would be if you'd stuffed the $1000 of paper money into your mattress.

[Manishboy]

I think the CPI and PPI are going down because there is an inflation in printed note money but the loss of digital money that was never printed (asset prices, leverage and the like) has out weighed the newly minted money. I could be wrong, I don't have the numbers, but it makes sense. Also much of this new money is sitting in bank reserves and foreign government reserves (China). Also, sooner or later Chinese labor costs will rise as wealth there grows and imports from there will become more expensive. In 1980, no one foresaw the fall of the USSR, so I wouldn't say gold will never be money again. You might be surprised.

[thew83]

The point is, if and when gold goes to $5000/oz, the ounce you bought for $1000 will be tradeable for $5000. You're much better off with the gold in that case than you would be if you'd stuffed the $1000 of paper money into your mattress.

That and gold is much shinier than paper money.

[Invisible Finger]

Gold could go to $5000 and oz, and you still couldn't take it into a supermarket and buy a loaf of bread with it.

No, you' have to stop at the jewelry store next door first and exchange it for whatever currency the grocery store takes.

[R C Dean]

R C Dean is rolling in his piles of bullion at his undisclosed location (in Texas) as we speak.

Bwahaha! [strokes white cat]

Not only that, but I switched my "paper" gold (ETF gold funds, because they're in my retirement accounts) to a brand new fund (SGOL) that keeps its gold in Switzerland. The big US exchange fund (GLD) has its gold in New York, in the custody of institution known for taking naked gold short positions. Somehow, having "my" gold controlled by someone who might have to come up with a shitload of gold in a hurry didn't seem like a good idea.

Although I will admit that gold has seriously underperformed equities this year. So there's that.

[ABC]

"I don't consider myself a gold bug, in fact that best thing to happen to gold is governments no longer fixing the price of it. But to have a couple percent of your wealth in physical gold isn't a bad idea. When you're over 10 percent, then it's a bad idea. Don't put all your eggs in one basket, ya know."

I think that folks confuse gold bugs, i.e. folks who want a government run gold standard, with folks who want the government out of banking and who assume that gold will end up as being the commodity that's used in a free market currency system.

[Graphite]

The bond market is the stock market's wiser, more-informed uncle, and it's been signaling deflation for over a month now. Slack-jawed equity and gold traders will get the message sooner or later.

I thought the point of Goldschl?ger was that you can *puke gold*!

Since the COMEX has just witnessed a new record for net long speculative positions in gold, "puking gold" may be a good description for what we are about to witness if various reflation-trade-chasing hedge funds and retail GLD buyers try and hit the SELL button all at once.

Gold is a good disaster insurance policy but we're nowhere near the prices where it would make sense to back up the truck.

[Warren]

R C Dean,
I made the mistake of buying ETFs for my IRA too. The problem isn't just security risk, it's management fees. After six months I noticed the value of my fund wasn't keeping up with the price of the metal. I sold the fund and took possession.

If you're planning on holding onto your shares for more than a few months, I recommend you do the same. Bury it in the back yard, under the rose bushes on the night of a new moon.

[madogvelkor]

I've invested in five tons of flax.

[James Ard]

I think I'd be better off taking delivery of oil than I would gold. Plus that would save me the cost of buying pool chemicals next year.

[Warren]

Although I will admit that gold has seriously underperformed equities this year.

Not true. Gold and the S&P are even YTD.

[Monetary Inflation]

I have thrown out any number of crackpot theories to explain why the dollar continues to buy more while being worth less.

While I'm pretty sure this in jest, there is a real reason why monetary inflation can actually reduce prices (in the short term).

The problem with monetarists is they pretend there is a magic genie that multiplies every dollar by a greater than 1 factor when money is inserted into the system--this however, is obviously untrue.

To the interested party, I would look up monetary "distribution effects." When money is inserted into the market system through fiat, it has an insertion point. This distorts price signals in an unpredictable way by allowing those who are directly subsidized by it to "invest" in capital which is not demanded by the market. In addition to penalizing those who produce market-demanded goods in the short term, when reality catches up with the subsidized, they are forced to heavily discount the products created with their capital. This creates excess supply shocks which can reduce prices (e.g. housing market circa today). It would be incorrect however to say that these were deflationary effects--their root cause was and is monetary inflation, outside of the traditional CPI metric.

People have stated that inflation is increased prices. However, it would be more accurate to say that inflation is noise around price signals in the short term, but increased aggregate prices in the long term once those shocks have reached equilibrium (as best as the decentralized and ever-moving market can determine).

Because the housing market has a long-term reset schedule the noise, a.k.a. "the boom" had a rough timeline of 5 years. However, in the exceptionally speculative (and disturbingly centralized) equities market, these noise signals can be of much shorter duration. If the equities market tanks--it does not necessarily mean it's deflationary--it could be the clearing of excess supply through capital malinvestment.

[SusanM]

Serious question here. How does a commodity-backed currency "work"? Especially when the values of these commodities change daily? This one has always kinda stumped me.

[The Wine Commonsewer (TWC)]

Gold and silver did this in the bad old days of Jimmah Carter's inflation. Then, suddenly, the price dropped by 75% and it languished there for decades until the antics of GWB and Mr O'Blama.

TWC still has some K-rands and junk silver dollars from the day. More junk silver than K-rands, unfortunately.

The time to buy gold was two years ago. Hopefully, I won't have to eat that pronouncement when Au hits fifteen hundred dollars an ounce.

[Doug]

Meanwhile, insiders sell like there's no tomorrow.

[The Wine Commonsewer (TWC)]

Inflation is a fact of life in the US but it isn't evenly distributed and is distorted by efficiency gains (see: cost of televisions today compared to twenty years ago).

A client and I have been meeting regularly for lunch at the same restaurant for about 15 years. We used to get out the door for fifteen bucks including tip. Now it's more like thirty five bucks. That's inflation, boys.

[The Wine Commonsewer (TWC)]

Serious question here. How does a commodity-backed currency "work"? Especially when the values of these commodities change daily? This one has always kinda stumped me.

In theory, the value of the commodity isn't changing daily the value of the dollar that you use to buy the commodity is what is changing daily.

[mediageek]

Should have bought gold when it was going for $650/oz a few years ago. Would be nice to have some, at least.

[Paul]

The dollar is worth less, so it takes more dollars to buy the same ounce of gold?

[Paul]

A client and I have been meeting regularly for lunch at the same restaurant for about 15 years. We used to get out the door for fifteen bucks including tip. Now it's more like thirty five bucks. That's inflation, boys.

And the waittresses aren't as hot. That's deflation, boys!

[Paul]

Point remains, no matter how much gold is "worth", it will never be a currency again.

Legal Tender, or 'currency'? It's currency NOW! Legal Tender, it's not.

[Paul]

If the govt confiscates your gold like FDR did, its value to you goes to 0.

Correction, your value goes to $0, the gold keeps its value. In fact, it may actually increase in value due to its new 'rarity'.

[nomadfl]

Gold....after reading the above post....a few too many "paper" bloggers are just talking.

Gold is going where it has never gone before...higher....a heluva lot higher.

Reason.. The Chinese are involved....China has a lot of US notes....they are dumping them....their business people have lots of US notes....and they are dumping them.

They have just started to let their people buy physical gold and silver to get rid of their US currency....just think...if 1 of 10 Chinese bought an ounce of gold...that is almost...or is 120,000,000 million ounces of Gold....as I stated...China wants out of US Dollars and are willing to bid the price up to get the Gold....and there is also another reason....retaliation on the US Merchant Banks on Wall Street....these are the people who have been naked shorting gold....they don't even have it to cover their shorts....There is almost as much naked shorted gold out there as their is physical gold....these guys play games....drive up the price....naked short it....This drives the price down...then they refill their position.

These days are gone....the Chinese know that, plus the Chinese know who caused this world's financial crisis ....It was the greed on Wall Street.

It is said on some forum....this increase in gold prices is orchestrated by the Chinese to penalize and destroy the Wall Street people

With the increase in gold prices done by Chinese buying....the cost of Wall Street covering their naked shorts is going to put them under....cash used to be king....USD's are now classed as used toilet paper....Gold is now king. As gold is increased in price, it is undervaluing the USD....things are going to be happening......just a Gold Bug here ...an old gold bug

[Name Withheld]

Remember all of those Make Money on Real Estate commercials on TV up until about a year and a half or so ago? What ever happened to those.

These days, the commercials are for gold. It's the next bubble to blow. I have correctly predicted every bubble-burst, beginning with the tech stock bubble.

[nomadfl]

I will tell you something else about Gold, In the 70's when I lived outside of Montreal, my neighbour was an American....Charlie Robbins by name ...an old gold promoter on the old Montreal exchange. Charlie and I were talking one day about gold and being in the army...as I was at that time. Charlie served in the US Army as a military policemen, stationed in Berlin after the war...back in 45.

Now Charlie saw something many people didn't....during all that rubble and starving people....their was always some that sat in open cafes in Berlin drinking coffee, and having sweets as Germans always do. So Charlie being a nosy cop.....started asking around....how did these people get to enjoy good things while the banks were destroyed and closed...Charlie found out....these people had pieces of physical gold....and with that physical gold in those hard times in Berlin in 1945....they enjoyed themselves....because paper money was worth nothing.

Now the moral of this story is....if something drastic happens.....gold will always get you through....paper is worthless.....

[anarch]

If the govt confiscates your gold like FDR did, its value to you goes to 0.

Like other contraband?

[nomadfl]

As to Quote:Name Withheld | September 11, 2009, 7:49pm | #

"Remember all of those Make Money on Real Estate commercials on TV up until about a year and a half or so ago? What ever happened to those.

These days, the commercials are for gold. It's the next bubble to blow. I have correctly predicted every bubble-burst, beginning with the tech stock bubble"

Remember "namewithheld"....most of those ads are for paper gold....not physical gold. There is more paper gold out there then there is real physical gold....when shorters get caught with their pants down.....that paper gold is like ABCP....not even good for toilet paper....mark my word...an old Gold Bug

[nomadfl]

And anarch | September 11, 2009, 8:00pm | # Says

If the govt confiscates your gold like FDR did, its value to you goes to 0.
Like other contraband?

Don't worry it will never happen...in fact the Chinese Government are telling their people to buy gold and silver...read all the reports on Kitco...you guys must live in a tunnel....an Old Gold Bug

[dhex]

"You can't eat gold."

tell that to the people buying monoatomic gold!

http://www.book-of-thoth.com/ftopict-8476.html

[mark]

I thought to myself that perhaps in the long run, the price of gold would be equal to the NPV of world GDP divided by the supply of gold. Obviously the numerator changes rapidly as politics change, but it probably rests in a certain range, let's say $50 trillion/year for 20 years with a 10% discount rate, which corresponds to a NPV of $425 trillion. Divide that by the estimated gold supply of 161,000 tons per the World Gold Council, and we arrive at a value of $90,506 per troy oz (thank you google).

That doesn't seem right. But the total value of all the gold in the world is only about $4.7 trillion which is less than half of U.S. GDP. St. Louis Fed puts M2 money supply at $8.3 trillion. Gold is freaky; it's hard to tell how to value it at all.

[nomadfl]

Gold....here is the place to read about it...gold, gold, and more gold

http://www.kitco.com/

...just spend your weekend reading all these articles....

If you do not know what Kitco is then you just don't know GOLD....just an Old Gold Bug

[nomadfl]

And dhex | September 11, 2009, 8:09pm | #

Says "You can't eat gold."

tell that to the people buying monoatomic gold!

http://www.book-of-thoth.com/ftopict-8476.html

Tell that to the people who survived in Berlin in 1945....they had something to buy food with (gold)....remember food banks are just something new ....and can get overwhelmed with hungry clients....I know...I volunteer in one....Just an Old Gold Bug

[nomadfl]

And dhex | September 11, 2009, 8:09pm | #

If you believe in this..http://www.book-of-thoth.com/ftopict-8476.html

You must still believe in Santa Claus

An Old Gold Bug

[Ebeneezer Scrooge]

Silver and gold are sexy again.

They say there was a time when fat ladies were sexy too.

So here's a crack pot theory. Any minute now we'll get past this thing we're driving over in the road. Then we can see it in the rear view mirror and we'll know just what it is. Assuredly, something ranging in size between a mo hill and a land-bound Moby Dick.

Only then will the inflation set in. Or maybe by then we'll figure out that uncle Sam exported it all to China. Because they were such dicks about dealing with N Korea so they deserved. Or maybe just because they aren't us and we found a way to pull it off.

When the Chinese get done buying all the gold and silver in the whole f'ing world, what exactly are they going to do with it? Make statues of fat ladies?

[Ebeneezer Scrooge]

I mean, unless I've totally misunderstood basic economics, if the Chinese send us shit loads of boats full of Chinese made goods, the only way they ever "get their money back" is to take back an equal shit load of boats full of our goods. Whatever the "goods" may be.

Fat ladies, perhaps? They do say China is short on women.

I for one am prepared to watch Obama go on national TV and declare that we must sacrifice all our fat ladies, round them up and ship them out to pay off the national debt to China.

[nomadfl]

And Ebeneezer Scrooge | September 11, 2009, 8:40pm | #

Says"When the Chinese get done buying all the gold and silver in the whole f'ing world, what exactly are they going to do with it? Make statues of fat ladies?"

Ebeneezer...they will do like everyone has done since the beginning of mankind

Use it for wealth....value of gold will never end...it's too pure a metal

Just an Old Gold Bug

[Ebeneezer Scrooge]

tell that to the people buying monoatomic gold!

But I'd hate to ruin their day.

Tell that to the people who survived in Berlin in 1945....

We could have told the same thing to people in Vietnam before 1975. They too kept their "money" in gold.

But this whole theory only works if a) the government is much closer to non-existent than we currently have, and b) you have to actually have the, uh, actual gold in your actual hands. Or buried under your actual rose bushes, as the case may be.

I suppose someone will now tell us the apocalypse is neigh upon us, and that we will need to have gold buried under our rose bushes in two minutes.

My GPS also tells me with consistent regularity that where ever I'm going, it's only two minutes away. It's always two minutes away, no matter what time it is.

[Ebeneezer Scrooge]

Use it for wealth....value of gold will never end...it's too pure a metal

Unless they're the only ones left holding any gold. In which case I'm not so sure it's clear what happens next.

If the Chinese want to turn "gold" into anything "useful", they'll have to give up some gold to do it.

Somehow the idea of China buying up all the gold doesn't scare me. If they get too serious about it they'll drive the price of gold up beyond its true value (or do you believe the sky's the limit?) and then they'll have screwed themselves.

The basic principles of economics remain. The Chinese ultimately have to get something in return from us in order to get paid back. Gold isn't it.

[Ebeneezer Scrooge]

btw, I'm still not convinced inflation is going to go ape-nuts crazy. This article makes lots of sense

http://www.econlib.org/library/Columns/y2009/Hummeltbills.html

and it says, more likely the fed will find some method of defaulting on its debt. In a more or less elegant manner. Though this doesn't mean we won't see some degree of inflation anyway.

Sorry but I'm not html savvy enough to turn the above into a live link. Perhaps some day I'll learn.

Meanwhile, uncle Sam spends bazillions while the real estate market drops in something like a similar proportion. Damned if I know what's going on, or even what to be afraid of. I'm not convinced anybody does know.

[nomadfl]

This is from Kitco...lots of good reads there

Hedge-Trimmers Get a Haircut

By Jon Nadler
Sep 11 2009 10:47AM

http://www.kitco.com

Good Day,

Gold prices climbed back above the $1,000 mark in overnight trade, after reports showing that China's economy is on an apparently stronger than strong track motivated global investors to once again seek riskier, and/or higher yielding assets. Global stocks rose to eleven-month highs, commodities rose along with them, and the US dollar sank further on the trade-weighted index as the aforementioned quest for returns in other markets left it wanting for buyers.

Additional data, this time from the US, kept pressure on the greenback as the morning trade got underway in New York today. Specifically, US imports rose at twice the expected rate -likely as a result of the flood of imported autos destined as clunker replacements- and sent the American currency to the 76.66 level which now shows a 2% loss for the week.

New York's spot bullion gold price opened with a $4.50 gain this morning, and was quoted at $1000.90 per troy ounce. As trading commenced, the dollar index was trading at 76.61 and crude oil lost a little more than a quarter, quoted at $71.68 per barrel. Gold ETF GLD holdings remained static for a fourth day, at 1077.63 tonnes. Silver prices rose 13 cents to reach $16.80 per ounce, while platinum climbed $4 to $1289.00 an ounce.

Palladium showed no change and continued at $290 per ounce. "Cash for clunkers" has now morphed into 'cash-back guaranteed' over at GM. The firm announced that any buyer who is dissatisfied with their GM-brand purchase can return the vehicle to their dealer within 60 days. The newly reborn automaker benefited less from the auto trade-in stimulus plan last month than did rival Ford and/or arch-rival Toyota.

Shortly after the open, precious metals matched and/or took out their February highs, motivated by further declines in the US dollar. Previously mentioned targets for the dollar-euro rate at 1.46 were achieved and have given rise to 'what's next' type of questions from trading quarters we surveyed.

Gold traded as high as $1013 before pulling back to $1007, silver vaulted to $16.84 an ounce, and platinum leaped above $1300 (by $5) showing a $20 gain. Conflicting reports of Coast Guard shots being fired at a vessel on the Potomac River rattled market nerves for a brief time. The dollar index was last seen at 76.59 whilst oil rose 45 cents to $72.39 per barrel.

In the interim, Treasury Secretary Geithner outlined that which one would have expected to be outlined shortly after the G-20 meeting; the blueprint for the next phase of official activities. Mr. Geithner let it be known that the passage of the crisis stage brings with it a new strategy by the Fed and the Treasury.

Whilst expecting that the US and global recoveries will be fraught with 'more than the usual ups and downs' the Secretary indicated that the time has come to 'unwind the extraordinary programs that were put into place during the crisis.' He also intimated that the mopping up and removal process would be dependent -in both strength and pace- on manifest economic conditions as time goes by. No sudden moves, in so many words.

Much opinion-flavoured noise has recently accompanied the decision by Barrick management to stop all gold hedging. Gold perma-bulls have hailed it as the sign of the 'all-clear' signal for the lunar gold mission. Yes, this is the same Barrick that had once been sued for allegedly 'illegally manipulating' the gold price via its hedging programmes. And, the announcement came at a time when the trend towards hedging shows real signs of life.

Many an analysis (BNP Paribas VMFortis, GFMS, CPM, etc.) reveals that the de-hedging programmes in force in recent years are drawing to a close, or are shortly expected to do so. Now, we know that you just have to have read a plethora of commentaries that hail the firm's decision as nothing short of the catalyst and/or reflection of gold's second (or fourth?) coming.

What you may very likely have missed however, are some equally incisive blogosphere commentaries to the contrary. We bring you just two of them (and remember, these are opinions - just like all of the other writings), for the sake of balance, courtesy of the Globe and Mail.

First, excerpts from MSN Money blogger James Dlugosch:

"The hedges basically commit the company to selling gold at specified prices. The idea is to guarantee consistent cash flow for the company. But as the price of gold has increased, the hedges forced Barrick to sell gold at less than market value.

Succumbing to shareholder pressure, management claimed that its gold hedges had weighed down the valuation of shares in a rising-price environment.

By closing the hedges, Barrick can get more for its gold and more for shareholders - if the price of gold keeps rising. In effect, this is a huge bet on $1,500 or $2,000 gold. Stop me if you have heard this before: An investment fails to perform for several years, often irrationally. Then, just when investors give up on the trade, the trade turns.

This move is either the company's brightest move ever or one of the most insanely dumb thing any company has done ever. I vote for the latter."

Next up, Seeking Alpha's blogger Chad Brand' take:

"As you may have seen, gold prices have risen sharply in recent weeks (chart below) and now trade near $1,000 an ounce for the third time over the last couple of years. The metal never seems to stay over $1,000 for long, even in the depths of the credit crisis. Barrick has decided, seemingly based entirely on pressure from shareholders to go 100% long on gold just as the metal is nearing its all-time high. I thought we were supposed to buy low and sell high?

Barrick is going to pay $5.6 billion to lift its hedges, which is the mark to market loss it has on the books right now. On 9.5 million ounces, that means the company is underwater by $589 per ounce and must pay that much to get out of them. That means Barrick is partially hedged at $411 per ounce with gold at $1,000.

Why not wait for gold to drop to $800 or $900 before lifting the hedges? That would be a "buy low" type of move and even buying at $900 per ounce would save the company $1 billion in cash, versus making this move right now."

The National Post reported this morning that Barrick shares rose C$1.28, or 3.2%, to C$40.99 on Thursday in Toronto Stock Exchange trading. The shares have declined 8.3% this year. Barrick is the third-worst performer this year on the Philadelphia Stock Exchange Gold and Silver Index. The company also announced that it will be seeking to invest in higher-risk areas in its quest for metal and profits (see yesterday's commentary on "Risky Business" in certain parts of Africa). By comparison, Vancouver- based Goldcorp Inc., the second-largest producer of the metal, has risen 15% in 2009.

And the beat goes on?

Polled traders in Europe had these thoughts to offer to our friends over at GoldEssential.com:

One London-based trader said in an interview that "volumes so far have been relatively light, although with decent two way trading making up for a narrow range". He added to be still looking for a close above the figure in order to unlock further upside next week.

"The bounce off the $985 support mark on Thursday showed that the stuffing has not yet been knocked out of gold", he said, adding that a short-term overbought condition had mostly been unwound as gold hovered sideways for much of the last week.

A technical analyst at a major German bank added that "a weekly close above the $1,000 would be a bullish item, but that short-term confirmation of further gains was still to be seen above $1,010 and $1,030.80".

Have a Peaceful and Reflective Day.

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal

Placed on this site by an Old Gold Bug

The way you're spending elipses, you'd think they're worth less than gold.

You'll see who has the last laugh when they're all gone, and I'm the one with the dots and the cans of extremely inexpensive dog food!

[Tim Cavanaugh]

nomadfl, straight up: Are you an old Gold Bug or a young one? I can't tell from your comments.

[John C. Randolph]

Point remains, no matter how much gold is "worth", it will never be a currency again.

It's currency right now in Zimbabwe.

-jcr

[smartass sob]

@Ebeneezer Scrooge:

Sorry but I'm not html savvy enough to turn the above into a live link. Perhaps some day I'll learn.

It's really pretty simple to do web links. Here's a link to a tutorial site that shows you how. Shouldn't take more than 10 or 15 minutes to learn, if you already know how to copy and paste.

[TheZeitgeist]

The disconnect with local prices vs. international collapse I think is because the vast majority of these dollars we're pumping out of the Xerox are immediately heading offshore in the form of bonds, and then coming back to sit in a bank and collect dust for awhile, or be appropriated in the "stimulus" over the next two years or so. So for us its see no evil hear no evil. But the rest of the world sees the bonds every auction, so it definitely is seeing and hearing evil in real-time. Given that situation, I bet the most accurate back-of-napkin scheme to put a value for the real inflation coming would be to take the flat prices locally and the devaluation internationally and average them out.

Ditto with the stock market, which in a weird way is kind of like gold. The government can wreck the currency all it wants, but there is intrinsic value in the companies valued on the exchanges. Google is worth something, Whole Foods is worth something, Boeing is worth something, etc., whether you use Monopoly money, gold, whatever to value it.

The increasing valuation of the stock market doesn't show the increasing valuation of American companies at this point, I think it just reflects the value of American companies is intrinsically worth what it is more or less. And as we all keep hearing from the "recession is over" crowd the stock market as an indicator leads the broader economy by anywhere from six months to a year.

Based on that, I would guess inflations-a-coming, with perfect timing to set the Donkeys up for a shellacking in 2010.

[kwais]

""I for one am prepared to watch Obama go on national TV and declare that we must sacrifice all our fat ladies, round them up and ship them out to pay off the national debt to China.""

That would have been a much better speech.

[Ebeneezer Scrooge]

Thanks to smartass, that took less than two minutes.

Here's the article I mentioned above. Assuming I get it right the first time.

[Ebeneezer Scrooge]

But then I didn't make it open in a new window. Here, this time the article opens in a new window.

Ha! I may not a clue what's going on with the economy but I can now link you up to a website.

[Kant feel Pietzsche]

One of my favorite novels had a character (American) living in post WWI Germany. (Talk about hyperinflation!)

A friend (Russian) advised him on first moving there to open an account at the local eatery with $20 US. This was prior to the hyperinflation occuring.

Over a 5 year period, he NEVER hit the bottom of his $20 investment.

[smartass sob]

Thanks to smartass, that took less than two minutes.

You are quite welcome. 😉

[Hacha Cha]

"Can you imagine that? He offered this to me as if it was really worth something."
"You know wasn't it worth something once, George, I mean didn't people use it for money?"
"Sure, about a.... hundred years or so ago, before they found a way of manufacturing it," tosses the gold ingot greenback away.

[nomadfl]

And Tim Cavanaugh | September 11, 2009, 9:58pm | # says

"nomadfl, straight up: Are you an old Gold Bug or a young one? I can't tell from your comments"

I'm 73...still young at heart...and still likes pretty ladies.....An Old Gold Bug

For future reference, links that open in new windows by themselves are frustrating. I can direct it into a new tab or window if I want, thanks. (Hint: context click it -- right click, or ctrl click on Macs or a long left click on Firefox for MacOS)

[nomadfl]

Guys....this is what you should be reading when it comes to GOLD .....book mark it for reference

http://www.stockhousefeatures.com/gold-and-silver/index.php

Just an old Gold Bug

[Tim Cavanaugh]

The disconnect with local prices vs. international collapse I think is because the vast majority of these dollars we're pumping out of the Xerox are immediately heading offshore in the form of bonds, and then coming back to sit in a bank and collect dust for awhile, or be appropriated in the "stimulus" over the next two years or so. So for us its see no evil hear no evil. But the rest of the world sees the bonds every auction, so it definitely is seeing and hearing evil in real-time.

Yeah, that's one of the crackpot theories I advanced in one of the links above. A bunch of commenters accused me of not knowing jackshit about doodlysquat, which I'm sure is true at some level.

[Space Fiend]

Is it not true that the Fed has nearly a trillion dollars sitting in interest-bearing "excess reserves" accounts? Given that, it's pretty easy to see why prices are stable despite huge money supply growth - the banks have a ton of money that hasn't been multiplied at all, sitting in accounts in New York.

As soon as interest rates start to tick up and the banks want that money to come out is when the real trouble starts.

[economist]

Why does everyone associate free market currency with goldbuggery (yes, I just coined a new term). Free market currency is about allowing the currency that people find best facilitates their transactions. If gold works best for people, then bully for gold. But if it doesn't, there's no reason on a truly currency market a different currency couldn't emerge. It's become fairly clear to me that fiat currency doesn't work, and that any government put in control of the money supply will ultimately destroy its nation's currency.