Monday, 20 March 2017

San Francisco School Of Economics - Money And Banking Professor Fekete On Barrick Gold And Market Manipulation

More on the subject that is the Barrick Gold fraud.
The following is an interesting independent look at Barrick Gold in 2009 by San Francisco School of Economics, Professor of Money and Banking, Antal E. Fekete. It offers further insight in how Barrick Gold uses hedges to manipulate the price of Gold.


Antal E. Fekete
Professor of Money and Banking

San Francisco School of Economics
According to an announcement dated September 8, 2009, Barrick is going to throw into the

dustbin its long-standing hedge policy, and pay for buying back its hedge-book by diluting the

value of its common stocks through issuing more than 81 million new shares, or about 10

percent of the outstanding. The so-called hedges of Barrick have been thoroughly discredited

and will soon be history. So-called, because the long-term forward sales contracts in question

that the parvenu gold miner has invented and flaunted are not proper hedges and never have

been. They are a fraud. They are naked short positions pretending to be balanced by gold ore

reserves in the moon (or on this earth which, for hedging purposes, is practically the same

thing). Part of the newsworthy story, of course, is the fact that the hedge book of Barrick has

been increasingly under water for some nine years now, threatening the unfriendly giant with


Within 24 hours another hasty announcement was made to the effect that the company,

instead of issuing 81 million new shares, will in fact issue 94.4 million, that may be raised to

109 million if the demand justifies it, for a total value of $4 billion — the biggest primary

equity offering in Canadian history according to the local media. The hike was explained by

“strong investor demand”. The market, however, put a big question mark to that “forwardlooking

statement” of the company in marking down Barrick shares 6.85% on the same day to

$36.61, the greatest percentage loss among the leading gold mining shares on the day.
Incidentally, in doing this the market has put a lower value on the Barrick stock than the

company did. Barrick is offering its new issue at the price of $36.95 per share.

The $1.9 billion that Barrick is hoping to raise through this dilution maneuver to

eliminate all of its fixed-price gold contracts falls far short of its goal of buying back its

hedges. The liability represented by Barrick’s once flaunted forward sale contracts has been
carried off balance sheet so far. These fixed-price gold contracts have a negative value of $5.6

billion, that will be charged to earnings in the third quarter. This negative value will almost

certainly increase during the next 12-month period Barrick gave itself to get out of the

quicksand. The announcement itself is a virtual guarantee of that: Barrick will have to

compete in the gold market with China, Russia, India, Brazil, and other countries (not to

mention other gold mines in dire need to de-hedge) for a diminishing amount of gold

available for cash delivery, to the tune of 9.5 million ounces in today’s strained gold markets.

The big unknown question is whether Barrick will be able to buy back its hedges fast

enough to stop the continuing hemorrhage. Barrick is racing against the clock. Gold is still

available for cash delivery, but in what quantities? and for how long? 9.5 million ounces is an

awful lot of gold to buy in today’s anemic gold markets with supplies drying up fast. With the

threat of the last contango and of permanent backwardation hanging overhead like Damocles’

sword, Barrick’s plan appears to be a pipe dream that will never be fulfilled. I may be in a

minority of one on this one, but Barrick’s future is anything but rosy. 9.5 million ounces is a

lot more gold than Barrick is able to produce in an entire year in the best of circumstances.

Even if Barrick were to sell not one ounce of gold in the open market for a whole year, but

deliver every ounce it extracts from the bowels of the earth to its hedge books, and even if we

accept the most optimistic assumptions of the company to increase its annual production as

realistic, there is still a shortfall of at least 1.5 million ounces. I submit that Barrick could not

survive if it was to suspend its sales of new gold in the open market for a whole year, while

facing the extra cost of forcing up production quotas. No lender in its right mind would

finance such a crazy plan. Creditors of Barrick would be all too happy to put the unfriendly

giant on the block, and sell Barrick’s stellar resources to the highest bidders, who would be

able to manage them in a saner and more responsible manner than present managers have.

Barrick’s managers were given the right advice twelve years ago that, at the end of the road

they have chosen, lies ruin and misery. They had all the time to change course. But even at the

last major announcement on “hedging” in 2006, when Barrick announced its new policy to lift

a part of its hedges, the then CEO Greg Wilkins said at the Annual Shareholders Meeting that
Barrick will always retain ‘a reasonable’ amount of hedges as an ‘essential risk-management

tool’. According to Wilkins, it is supposed to ‘stabilize’ revenues, and it is supposed to satisfy

banks that finance Barrick’s projects.

Two years ago I issued a public challenge to the management of Barrick in my piece
Have Gold Bugs Been Barricked by the U.S.?” (see References below) as follows.

I demand an answer why Barrick ignored my recommendation in 1997 which I

personally presented to the then CFO Jamie Sokalsky. During those ten years my

worst fears have materialized. It turned out that the “hedging” policy of the

company was, as I had stated, deeply flawed. It was an unmitigated disaster of

the first magnitude. It resulted in horrendous losses to shareholders. It is not

clear why Jamie Sokalsky, widely rumored to be the author of Barrick’s “hedge

plan”, got rewarded with a promotion for executing a disastrous policy, and why

his new boss Greg Wilkins has stated in public that the company is standing by

its original hedging policy, albeit on a reduced scale. I categorically state that

Jamie Sokalsky had been thoroughly familiar with the alternative, what I called

the correct principles of hedging. He and I discussed the subject together at great

length, and he received from me a Memorandum that spelled it all out. This

Memorandum found its way into the book of the late Ferdinand Lips entitled
Gold Wars and can be seen there by any interested party.
I am disclosing it now for the first time that Barrick has ignored my challenge. Yet, as its

announcement of September 8 last proves, I was right all along. The “hedging” policy of

Barrick was so obviously insane, so much in conflict with any common business sense, that it

invited extensive speculation that Barrick was not really a profit-seeking business. It was just

a front set up and operated by the U.S. (and/or by other governments) in order to cap the gold

price. In other words, Barrick has been a partner to the greatest conspiracy in all history: to

throw dust into the eyes of the investing community making it believe the gold

demonetization fable. If the conspiracy theory is true, then the linchpin to cap the gold price

has been Barrick’s hedging policy. By aggressively selling gold forward at the expense of the

shareholders, the gold price could be kept in perpetual check — or so the script went. Just

make Barrick the world’s Number One gold producer, its hedging policy will frighten the

daylight out of any bullish speculator in gold. And we might as well admit that the conspiracy

has been rather successful, in so far as conspiracies can ever be successful.

In the article quoted above I made it clear that I was not a subscriber to the conspiracy

theory, although I reserved my right to change this opinion pending future evidence as they

become available. A major piece of evidence has just surfaced. Barrick has unceremoniously

discarded its long-cherished hedging policy, paying a heavy price in dragging the underwater

hedges into its badly punctured balance sheet that was no longer fooling anyone, and in

having to dilute the value of its outstanding shares.

Have I changed my mind about the validity of the conspiracy theory? Is it not an

appealing interpretation that a decision made by policymakers in the U.S. Treasury and the

Federal Reserve deemed that the cost of maintaining the gold cap at $1,000 is becoming too

high? The cap can no longer be defended in view of the world’s global credit crisis.

Subsequently Barrick was to be dumped and let to fend for itself in the rough waters after the

sinking of SS. Lehman. Barrick has received what it has so richly deserved: it has been

barricked by its partner in crime.

The supreme irony of this scenario would be hard to escape. This would not be the

first time that a creature of Peter Munk has been barricked by a government. There are some

older guys around still, like myself, who remember how the government of the Canadian

province of Nova Scotia has barricked Munk’s top line radio and hi-fi console manufacturing

business. At that time Peter Munk swore that he would never ever again accept a government

subsidy, nor would he participate in a conspiracy involving governments. It is all related in

Peter Munk’s approved biography in great detail (see References below).

Every business initiative of Peter Munk has ended as a fiasco and he went bankrupt in

consequence. After his radio and hi-fi business shipwrecked on the rocky coast of Nova

Scotia, his real estate enterprise in Egypt failed where he was to build luxury hotels in the

shadow of the great pyramids. His dabbling in oil fared no better. Rumors have it that he also

financed a franchise in Israel of Colonel Sanders’ and his boys to make pork chops “fingerlickin’

good” — that failed, too, although this could not be confirmed.

After an unbroken series of business failures Peter Munk has come to gold. Would

gold be kinder to him? There is hardly anybody alive who could appreciate gold’s value better

than he would. He owes his Holocaust survival to gold that was paid by his father to

Eichmann through Swiss intercession for their free passage from Hungary to Switzerland in

1944. Yet there is probably no one in the long line of failed gold mining executives who

misconstrued gold more thoroughly than Peter Munk has. Conspiracy or no conspiracy, Peter

Munk is an inveterate believer in the power of the U.S. government to manipulate the price of

gold. That is the secret of his downfall. Peter Munk’s gold business is no better than his other

businesses have been, only bigger.

I am still not committed to the conspiracy theory according to which Barrick has

allowed itself to be used by policymakers in the U.S. to cap the price of gold, although I must

admit that the circumstantial evidence has become a notch more circumstantial with this latest

announcement. To me it looks like the desperation of a passenger aboard the sinking Titanic

who has lost his life saver. I base my judgment on the timing. To make such an announcement

at a time when the gold price is challenging the $1000 level is a miscalculation of Babelian

proportions, not to say a suicidal dash to the exit. All this time was wasted, while the gold

price was under pressure, when exactly the same announcement would have been helpful to

Barrick — as it has to Newmont. It is too late now. I do not see how Barrick can remain a

viable business entity once it has lost its tether, real or imagined, tying it to the U.S. Treasury.

My sympathy is with the shareholders of Barrick, who are going to fare no better than those

of Lehmann Brothers. What people do not seem to understand is that gold locked up in ore is

one thing, and gold locked up in vaults is another. There are times, such as now, when their

values part company. Why? Because too many gold mines are just a conduit to make the

shareholder and his money part company. Remember Mark Twain having said that a gold

mine is a hole in the ground with a liar standing guard? Remember Bre-X? It is so much

easier to fool people than doing the back-breaking work of bringing up gold locked in the ores

deep underground.

Aaron Regent, the new President and CEO of Barrick, commented on the company’s

announcement as follows:

“The 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. With the industry’s largest production and

reserves, Barrick provides exceptional leverage to the gold price, which we expect will

be further enhanced as we build our new generation of low-cost mines.”

But leverage works both ways. In the case of Barrick it has always worked the other way. Mr.

Regent sounds as if the troubles of Barrick were now over as management has finally decided

to bite the bullet. They are not. The agony will last until the last vestiges of the nightmare of

“hedging” will be erased. Even in the optimistic appraisal of management it will take at least

one year. In reality, it will take much longer, as ever higher gold prices will frustrate efforts to

close the hedge-book for once and all. The fact is that the wolf is at the door and refuses to

leave. The problem of the hedge-book will keep resurfacing, until everybody will understand

that it is unmanageable. The cat is chasing its own tail.

The job cut out for Barrick is the job of Sysiphus. He was a king who betrayed Zeus’

secrets. As a punishment he was confined to Tartarus and made to roll up a boulder to the top

of the mountain only to see it falling back, and his travail would start all over again.

When everybody sees Barrick as the latter-day Sysiphus, the company will give up the

ghost, and the cheerful creditors will happily carve up the rich caracass, with former

shareholders looking on in dismay.








Have Gold Bugs Been Barricked by the U.S.?, July 12,

Charles Davis, So Big It’s Brutal, Report on Business, The Globe and Mail: Toronto, June,

2006, p. 64.
Bob Landis, Readings from the Book of Barrick: A goldbug ponders the unthinkable,, May 12, 2002

Richard Rohmer, Golden Phoenix, the biography of Peter Munk, Key Porter Books, 1999

Antal E. Fekete, The Texas-Hedges of Barrick,, May, 2002

Ferdinand Lips, Gold Wars, Will hedging kill the goose laying the golden egg? p. 161-167.

New York, FAME
Antal E. Fekete, To Barrick or to Be Barricked, That Is the Question,,

August 11, 2008
George Bush’s ’Heart of Darkness’ — Mineral Control of Africa, Executive Intelligence

Review, January 3, 1997, see in particular:
Barrick’s Barracudas
Inside Story: The Bush Gang and Barrick by Anton Chaitkin

George Bush’s 10 billion giveaway to Barrick by Karl Sonnenblick

Bush Abets Barrick’s Gold-digging, by Bail Billington

See also: http://american

September 9, 2009
Calendar of Events
University House, Australian National University, Canberra: first week of November, 2009
Peace and Progress through Prosperity: Gold Standard in the 21st Century
This is the first conference organized by the newly formed Gold Standard Institute.
For further information, e-mail: ,

On the Gold Standard Institute, e-mail

Martineum Academy, Szombathely, Hungary, in March 2010.

Stay tuned for further announcement.

Professor Fekete on DVD: Professionally produced DVD recording of the address
before the Economic Club of San Francisco on November 4, 2008, entitled The

Revisionist History of the Great Depression: Can It Happen Again? plus an interview

with Professor Fekete. It is available from and from the Club at $14.95 each.

DVD’s of the Gold Standard University Sessions
Session 3 (Adam Smith’s Real Bills Doctrine and Its Relevance Today)

Session 4 (The Bond Market and the Markey Process Determining the Rate of

Session 5 (A Primer on the Gold and Silver Basis)

Session 6 (Encore Session: The Great Depression)

are now available. For details how to order, see the announcement on
the website .

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