Tuesday, December 1, 2009
A Barrick Surprise & The Colonel's December Predictions
It is 6:26 AM and it doesn't get much better than this. Grab a cup and let's see what's on the wire. Spot gold courted $1200 this morning before falling back a small nugget and Barrick just posted a surprise release that they are now free of all gold hedges:
Barrick Gold Corporation (NYSE: ABX)(TSX: ABX) announced today that it has completed the elimination of all of its Gold Hedges(1) and now has full leverage to the gold price on the industry's largest gold production and reserves.
"Our positive view on the gold price led us to accelerate the elimination of these contracts ahead of the schedule we had established. With their elimination we no longer have any gold price related mark-to-market exposure and will now fully benefit from increases in the gold price," said Aaron Regent, Barrick's President and Chief Executive Officer.
The Report first covered the Barrick hedge story last September (Barrick Takes a Bold Move, Moly Drops). At that time they anticipated a 12-month unwind of their hedge commitments and now they are done on the first day of December. Their strategy is to take full advantage of the gold market on the belief that the yeller stuff will continue to rise in price. Their stock is up over 6% this morning and that deserves a Colonel Yee-ha!
I just updated my commodity models for the month of December and this is where we sit for silver, copper and oil given $1200/oz gold:
The fair value of silver is $18.983 in a range of $18.163 to $19.802
The fair value of copper is $3.1858 in a range of $3.0349 to $3.3368
The fair value of oil is $82.70 in a range of $76.26 to $89.14
Given this morning's prices it appears that silver remains undervalued at $18.83. I bought at bit of silver during last week's Dubai crisis; although it doesn't have its usual zip, silver should hang in there with gold just fine. If you believe gold has further to go, silver is not a bad play to buy on the dips (Why is Silver So Cheap?). In fairness, lack luster silver performance for the last several months could still signal a top in precious metals so it is always caveat emptor (buyer beware) at these levels. It is important to remember that the downside of Barrick removing all their hedges is the loss of a major gold buyer to support price going forward. Potential liquidations of precious metals in the Middle East to raise capital for sickly Dubai could put some pressure on prices also. My bet is that animal spirits in the marketplace will prevent either of these issues from stopping a continued uptrend in gold and silver for now.
Copper price continues to rip and is only slightly overvalued with respect to gold. Goldman Sachs downgraded Freeport McMoran (FCX) yesterday but the Colonel remains bullish on copper and FCX for the New Year (it is a little scary to bet against the smartest kids in the classroom).
Unfortunately with the recent nuclear problems with Iran, oil prices may head back to $80 territory this month. We're looking undervalued presently following the "Dubai Dip" last week but oil got a nice pop up this morning to $78.45. Let's hope we stay clear of the upper range that teeters on $90.
So there you go buckaroos. Where next for gold?...$1300? Here's a Mineweb link for that thought process:
New gold rush may soon see the yellow metal test US$1,300 - Scotiabank (MineWeb, 12/01/2009)
I'm still pinching myself that we crossed $1000/oz just a short while ago! Caveat emptor, pardner.
Enough prognostication, let's walk the walk:
4-WD is OFF - It appears the Dubai credit crisis is contained for now and the VIX or "fear index" is happily below 25 again; smoother road market conditions expected (what's this?)
Yellow light is ON for possible adverse regulation/legislation (mercury emissions)
Otherwise, all lights are green on the Eureka Outlook Dashboard (upper right, what's this?)
Oil is up $1.17 in early trading to $78.45 (January contract, most active); Gold is is up $14.5 to $1196.8 (February contract, most active); Silver is up $0.305 to $18.830(March contract); Copper is up $0.0225 to $3.1995 (March contract); Molybdenum is steady at $12.00
The DOW is up 93.94 points to 10438.78; the S&P 500 is up 9.60 points to 1105.23. The miners are on fire:
Barrick (ABX) $45.53 up 6.65%
Newmont (NEM) $55.60 up 3.65%
General Moly (Eureka Moly, LLC) (GMO) $2.28 up 1.33%
Freeport McMoran (FCX) $84.48 up 2.03% (a bellwether mining stock spanning gold, copper & molybdenum)
Steel stocks are burning it up too, (a "tell" for General Moly):
Nucor (NUE) $43.19 up 1.84% - domestic steel manufacturing
ArcelorMittal (MT) $40.03 up 1.94% - global steel producer
POSCO (PKX) $124.45 up 4.40% - South Korean integrated steel producer
The Eureka Miner's Grubstake Portfolio is is up 2.57% to $1,310,698.71 (what is this?).
Headline photograph by Mariana Titus (Country Roads, HWY 278)