Tuesday, September 08, 2009


Barrick Sees $5.6 Billion Charge to End Gold Hedges (Update3)

A blogger on Tim Knight's blog referenced the above article. You can read the article easily enough for yourself. The point of posting about it is to remind you that in the miasmic undulations of the USD and the commensurate reflexivity in prices in both commodities and the producers/consumers of those commodities, hedging is something you ought to be aware of prior to getting yourself in a lather about opportunities.

Forward sales and purchase contracts are used to protect one against untoward movements in something that you are producing (gold, natural gas, oil, wheat etc) and/or consuming (same list). Essentially you are locking in a price. Remember when oil was barreling toward $150? Folks were buying contracts to lock in the price. If you were on the selling end (producer) v. the buyer (think airlines) you made out pretty handsomely depending on the expiration.

If you care to look at the fine print of 10-K's of companies that you are interested in trading (long/short) to take advantage of the move in commodities, you'll be able to ascertain the extent or not of their hedging activities. And it's not a bad idea to keep a notebook on these resource stocks (producers/consumers) and note their hedging practices.

Barrick is taking a $5+ billion charge. That's alot of bananas--slippery, rotten bananas if the price goes south.

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