From today's Gartman Letter...... (9-9-09)
"Turning then to gold, of course the news is that gold finally pressed upward through $1000/oz, trading as high as $1009 in early trade just before the COMEX opened yesterday for its regular trading session. It has failed since to push ahead, and is trading at or near to $1000/oz as we write.
We note firstly that ECB’s weekly statement of condition report shows that “gold and gold receivables” VARIOUS COMMODITY INDICES fell 1.49 tonnes compared to that of the previous week. The Bank reports that two central banks of Europe… the ones we’ve called “legacy” central banks… were the sellers and it has been some while since we’ve seen two banks as sellers in the same week, however, let us not forget that under the Washington Agreement the banks in question can sell, on average, 7.7 tonnes of gold/week to meet the 400 tonne annual ceiling. Further, please note, so that there is no confusion in this regard, the “ceiling” is an annual sum; the signatories to the Agreement can sell or not sell any sum of gold less than this total any week of the year but cannot exceed 400 tonnes for the entire year. We point to the 7.7 tonnes as an average simply to give our clients a reference point upon which to hold. Thus, although 1.49 tonnes is a good deal more than was sold the previous week, it is far below the “average” allowed.
However, the “big” news of the day in gold has proven not to be the fact that gold traded to and then rather failed at $1000/oz, but that Barrick, the world’s largest gold mining company and the one gold miner that had been fully given over to hedging operations for such a long period of time, said yesterday that it had chosen to cover its remaining “derivatives” transactions and was taking a huge $5.6 billion loss as a result… a loss so large that it had no choice but to issue new shares in order to meet that cost. Barrick’s CEO, Mr. Aaron Regent, said in the statement made to the media that Barrick’s gold hedge book has been a particular concern among our shareholders and the broader market which we believe has obscured the many positive developments within the company….As a result of today's decision, we have addressed that concern and maintained our financial flexibility."
In its official statement regarding the new shares that it has sold to a consortium of banks and broking firms, Barrick’s management said that it wishes to be fully exposed to the price of gold in the future and that this decision was made in light of an "increasingly positive" outlook for that price. The company went on to say that it expects global monetary and fiscal reflation will be necessary for years to come, resulting in an increased risk of higher inflation and a future negative impact on the value of global currencies.
The problem before us is this: Has Barrick’s decision marked the highs for the gold market; was gold taken higher last week and the week before by the buying-in of Barrick’s derivatives or does this mark the beginning of a new upward leg in gold? These are inordinately important questions, made all the more so by the fact that the “spec” longs in gold are at or near historically high levels, making it quite unlikely that they shall be able to buy more and push gold higher on their own. Too, we are all the more concerned given that gold is such a “psychologically” driven market and one given to public speculative participation. Barrick’s news has the “look” of that of a top, made all the more disconcerting in light of the huge media interest in gold of a sudden in the past three or four trading sessions. Tread lightly then, or tread not at all, in gold…. Tread very, very lightly.
