I was very impressed the week before last at how Barrick Gold picked the top of the recent gold rally. With great fanfare on Dec 1 they announced they had completely eliminated their hedge book ahead of schedule and were now fully exposed to the upside potential of gold — and, took a $6B charge to do so. That's some stop-loss! Three days later gold tanked spectacularly and has been going down ever since. Awkward.

It reminds me of the time back in 1996 when oil was $10 and the Economist did a huge spread on how the oil market was now permanently confined to structurally low prices for all sorts of wonderful fundamental reasons. That was the very week oil started its huge bull market that ended 12 years later in a price 15 times higher. When I heard the Barrick story on the news, this immediately leapt to mind, and I remember thinking "You know, I bet this is where gold coughs up a lung."

But maybe Barrick was its own worst enemy. After all, they were admitting that they had eliminated all commitments for future delivery, and were now in a position to dump their full production on the open market at any time. Well thought out. My question is, how'd they ever get so big?

Steve Ellison writes:

The Commitment of Traders report has recently been showing commercial short positions at multi-year highs. Apparently while Barrick was trumpeting the end of its hedging program, other producers were quietly increasing their hedges. Maybe it was Barrick's short covering that drove gold above 1200.


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