Gold Hedges

Having warned us all that the U.S. economic recovery was likely to be patchy, Mr. Bernanke at the Fed was probably to be heard in his office on Tuesday saying through gritted teeth, "See - I told you so" as confidence among America's homebuilders dropped. No doubt they are worried about the soon-to-expire government tax credit availble to first-time homebuyers.  Other data showed only modest rises in industrial production and wholesale prices. Mr. Bernanke is hardly short of vindication for promising an extended period of low interest rates.

The bad economic news didn't do much to inspire investors who traded stocks between positive and negative terriotry all day. Mr. Bernanke's response to a question asking whether asset prices at present levels were indicative of a potential future bubble was simply "no." Equity prices on Tuesday eased back as investors pondered just how bullish that thought might be when other data indicates tepid data.

The dollar rose as risk appetite waned, with commodity prices taking an early in the day hit before metals prices rebounded. Yet the price of gold continued to register a record high - this time to $1,145 per ounce in the December contract. A London-based researcher reported that the value of gold contracts put up for hedging purposes fell by the most in a quarter in five.

One of the basic facts for gold miners is that in order to operate their cash-intensive business they sell forward some production for cash needs. Some mining companies have been big believers in the rising tide for gold and have maintained their gold stash. Others meanwhile have had to sell in order to operate. However, some, like Barrick Gold for example are de-hedging - buying back gold hedges. Barrick is the world's largest gold producer and it de-hedged 2.5 million ounces in the recent quarter and has repurchased a further million ounces in October.

Considering that the global hedge book stands at 11.5 million ounces and may fall to 10 million ounces by the end of this year, such activity represents yet another big bullish fundamental for precious metals.

The Supreme Council of the Secret Order of Jurojin

Tyche Research

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