After years of top performance, Barrick's stock price has slid, falling nearly 11 percent over the last year, as prices for gold have soared nearly 18 percent. Randall Oliphant was recently shown the door as chief executive and replaced by another longtime Barrick executive, Gregory C. Wilkins. Now, Barrick has been sued by a gold dealer and gold investors who say its success of the last decade relied on manipulating gold prices.
"Recent events have only fueled the debate. With a strategy described in exotic terms like "off-balance sheet position" and "fixed-forward contracts," the hedge program sounds the way the kind of toxic ploys used by Enron did. For conservative gold investors, they are the equivalent of the investment bogyman.
According to NY Times, Barrick Gold, the darling that Kissinger, Bush Sr, and Brian Mulroney were involved in which brought us the Bre-X scandal, has been taking a beating in the markets of late. A few months ago, a broker friend of mine passed on a suggestion from his former employer (he's since left this company) that I buy into Barrick.
I sent him back an email saying, "don't you dare get me into Barrick. It's a scam and people are going to lose money."
It turns out I was right to invest elsewhere in the gold market. But gold has been going up steadily for a year. How could Barrick's shares be doing badly?
Things aren't going well because Barrick is heavily engaged in hedging. They supply the derivatives market by doing futures contracts to sell gold at a fixed price. According to GATA, they've been deliberately suppressing the price of gold on behalf of JP Morgan and others.
The entire mechanism is too complicated to explain here.
You can get the full lowdown at <http://www.gata.org/>www.gata.org and decide for yourself whether or not there's a relationship between Barrick's hedge position increasing and the price of gold going down. The evidence is compelling.
GATA's not the only one screaming bloody murder. Congressman Ron Paul (R-Tx), a Republican Libertarian, has been calling for an investigation for some time now.
Keep in mind, these sources I'm quoting, Fortune Magazine, Warren Buffet, NY Times, and Insight Magazine, aren't exactly conspiracy papers. This is no fringe lunatic set discussing the danger of hedging and derivatives, it's the players.
And the domino principle is real too. Sure, Barrick is fairly protected. But Morgan, Citigroup, the Federal Reserve, and countless others could get caught with their pants down. What if gold keeps rising, they need to buy gold to cover, and there's not enough cash or asset reserves to cover the difference between the low hedge price and the market price, for a really long time?
Meltdown. The banks, rather than go under, will start calling in demand loans. Almost all loans are actually demand loans. While there may be a payment schedule, the bank in most cases reserves the right to call in your loan or mortgage or line of credit on demand in order to cover their own losses.
So if they can't pay, they call in loans on property, and foreclose on assets. Except no one's going to pay book rate for assets or property into a declining economy and depressed dollar, so they end up having to foreclose on two properties to pay one bill for half the amount. And as the vultures move in as real estate prices to plummet, it affects other banks' situations, because EVERYONE has put up their mortgages as collateral for other loans and purchases.
So what was once five trillion in assets backing one hundred trillion in loans is now toilet paper, and more loans have to be called in to have sufficient collateral to stay legal. And so on and so on, until the interest rate is 0%, growth stagnates, currency devalues, and the economy implodes.
And all because some bastards want to buy time for a bankrupt economy so they can stay on top for a few more years.
Ask the Japanese about how quickly economic chain reactions related to loans backed by overvalued asset and property values can go wrong, and how hard it is to recover. They've been at 0% interest for their third year now, with no relief in sight, and the second largest debt in the world. Their stock market is at the lowest point since 1983. America's looking at itself a few short years from now.
So what do we take away from this as valuable information?
1. Barrick Gold is vulnerable if their ability to deliver is impeded. Such an obstacle to delivery could result in people calling in gold markers that they can't deliver. Perhaps someone should talk to Barrick's miners and explain to them how they're working toward their own enslavement and that of everyone else. Trouble at Barrick's mining operations could have a synergistic domino effect, crashing, or setting of a crash of the US economy.
2. The gold market appears to be deliberately depressed by certain parties, with the complicity of central banks. If this is not the case, I challenge the Federal Reserve to have a group of GATA auditors walk through the reserve and allow them to take a physical inventory of the US gold reserves.
3. While Barrick may be in a reasonably risk-free position should gold prices rise, their client bullion banks (JP Morgan Chase, Citigroup) most certainly are not. Watch for them to tank as gold prices rise above $400.
4. For the record, my Canadian shares are NOT in Barrick. Barrick sucks. The Bushies used Barrick and their genocidal pal Suharto to scam Bre-X investors out of billions, that's how they got where they are. If you buy Barrick, you support Bush and his gang of criminals. Go ahead and sue me Barrick, so I can make all your Bre-X shenanigans public record. I dare you.