Gold Forecaster
- Global Watch
Will Hedgers Buyback
Julian D.W.
Phillips
May 2, 2006
Excerpts
from "Gold Forecaster - Global Watch."
To buyback or not
to buyback?
 The
gold price rise is almost exactly the reverse of the market when
it fell to the "Brown Bottom" of $270 [the price at
which Britain was selling its gold] and so much additional profit
seemed to be gained by hedging.
As the gold price fell, hedging
became the clever, conservative and profitable thing to do. Now
that the market is rising these positions are becoming an embarrassment.
With most hedged positions averaging in real terms around $430
[including the 'Contango'] and with the opportunity cost of $200
at present, even the most resilient of gold company executives
holding these positions must be sweating buckets.
In the end, the producers with
huge hedge books still will have to take action to close them.
We find it nigh on
impossible to believe that the producers are not buying back
these positions. We fully expect them to be adding to current
demand.
Investors - measure
your political risk!
 To those
who invest in gold shares globally, and there are some exciting
mining companies out there, one of the investment analysis processes
investors must go through is to assess currency risk as well
as the taxation picture present and future. But Political risk
is an equal part of the process too. So that we can emphasize
this point a leading South African company issued this statement.
We don't mention the name of the company, because we want to
emphasize the principles detailed here as they apply so strongly
in this politically decaying world. Minor countries whose land
contains these resources are assuming powers which essentially
will lead to investment being discouraged there, but these politicians,
driven by their own agendas seem oblivious to this. Here is the
statement:
Some 70% of our operations
are in developing countries. In many of them government capacities
are limited or lacking, institutions are often weak and poverty
is a major challenge. The sectors in which we are active have
a number of distinct characteristics. These include:
- Firstly, our operations
have significant environmental and social impacts that need to
be carefully managed;
.
- Secondly, since mining
involves the extraction of a non-renewable natural resource it
presents distinct challenges in relation to sustainable development.
We therefore seek to ensure that during the lifetime of a mine
we balance the depletion of a natural resource through growing
the stock of social, human and man-made capital. This is not
too difficult where there is an effective State that makes good
use of tax revenues - but that is not always the case;
.
- Thirdly, the revenues that
we generate are often volatile and may cause macro-economic difficulties
and extractive revenues have sometimes been subject to wholesale
embezzlement by government; and
.
- Fourthly, our assets are
immobile and once we have committed to the development of an
operation we have a clear incentive to manage relations with
stakeholders in such a way as to minimise conflict and to promote
stability and prosperity.
These distinctive challenges
involve us in having to manage a wide range of increasingly salient
social and political risks. These issues are not peripheral,
but are fundamental to our continuing access to land and resources
and to our ability to attract investors and the best talent.
Moreover, I think we are
seeing a retreat from some of the protections of fiscal and regulatory
stability that inward investors enjoyed in many countries during
the late 1990s and the early years of the twenty-first Century.
Fuelled in part by an increase in nationalism around the exploitation
of natural resources and by the current boom in commodity prices,
some governments have been seeking a proportionately higher tax
take. In such situations, governments need to recall that investor
confidence is important at times of famine as well as feast and
they should avoid tax models which do not reflect market lows
or which, through reducing margins, lessen the resources which
can be viably developed.
So Investors, check these facets
too!
May 1, 2006
-Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
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