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The Barrick Gold Conundrum
A lot of speculation surrounds the recent announcement by Barrick Gold to raise $3.5 billion in equity to finance buy-backs of its gold hedges. While some lesser banks have taken this development as an immediate opportunity to upgrade the stock (not all that difficult into a rising market, even if common gets diluted by 94.8 million new shares), others have speculated that this is nowhere near enough to remove the full overhang of the existing hedges. A more relevant question is, why now, and what does this portend for the gold (and not just) market.
Rob Kirby, in an interview with Max Keiser, shares his perspective on the situation (a must watch not only because Kirby touches on several other key topics, including the JPM interest-rate swap domination, a topic Zero Hedge has discussed previously in detail, and where we are eagerly awaiting the latest and greatest OCC report, due at the end of September, in order to see just how big the Mutual Assured Destruction bomb that Ben Bernanke and Jamie Dimon will soon be threatening the US population with, but also just to revel in Max' expository passion).
A good and comprehensive overview of the Barrick situation, presented by less than biased and axed to the teeth sellside analyst teams-cum-prop desks, comes courtesy of Adam Graf at Dahlman Rose. In a note released to clients on September 10, Adam writes [highlights ours]:
Reducing Forward Gold Hedges. On September 8th, Barrick announced a $3.0 billion equity issuance to finance a gold hedge buy-back. On September 9th, Barrick announced it had expanded its equity issuance to $3.5 billion by issuing 94.8 million common shares at a preliminary deal price of $36.95 per share. Common shares outstanding have increased from approximately 873 million shares to approximately 968 million shares (982 million shares if the over allotment option is exercised in full).
Market-to-Market. Based on a $993/oz spot gold price, Barrick will record a $5.6 billion liability on its balance sheet. A $5.6 billion charge to earnings will be recorded in the third quarter as a result of a change in accounting treatment for the contracts. Barrick intends to use $1.9 billion of the net proceeds to eliminate all of its 3 million ounce fixed priced gold contracts (sold forward at $370/oz) within the next 12 months and approximately $1.5 billion to eliminate a portion of its 6.5 million ounce floating spot price gold contracts.
Hedges Remain. Based on our calculations, Barrick has estimated a cost of $569 per ounce to close the floating rate contracts. At that price, and based on the $3.5 billion equity raise, they should be able to close out approximately 2.6 million ounces of floating rate contracts. That should leave about 3.86 million floating contracts after all the cash from the announced equity raise is depleted. On this basis, to completely close out Barrick’s hedge book would require an additional $2.2 billion. The company has indicated that they could use debt to close out the remaining hedges if the cost of that debt was less than 5%.
Zero Hedge will not touch upon the apocryphal observations seen in other blogs discussing violent moves in gold any time Barrick does a readjustment of its hedge positions. Nonetheless, the massive (relatively speaking) move up in gold is not an isolated phenomenon, and has certainly got not just the gold fans following every tick, but also has some bullion bank executives likely very, very nervous. Throw in some aggressive ongoing gold repatriation, and all of a sudden this generally quiet corner of the commodities world could soon start looking very, very interesting.
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The world's economy is all "rigging and fixing" and fuzzy math... this is going to end so poorly...
Bejing clearly gets this and is allowing derivative contracts to be ignored and is buying gold and hard assets like a son-of-a-gun...
And BTW Max Keiser has a very sexy brain... and he is great to listen to...
...and fuzzy logic... me?... I'm just plain fuzzy...
Whoa nellie, hold on...
nice knockers
One fine day, the paper gold game is going to end. I have a feeling that day is not to far away. I'm most surprised GATA and the Chinese gov't were consulting. Better send Hillary to China for more "talks." Remember her, where the hell is our fine Sec. of State?
As for Barrick, extremely bullish of course. Just sell more shares and all will be right. NOT.
I can see the "boyz" sweatin' bullets tonite over all this. Talk about the mother of all short squeezes.
Back in Mar '01 the gold was under $300, fast forward $700 to $1000 and suddenly someone is BULLISH GOLD? What stone have they been hiding under? Everyone is bullish gold, just listen to the radio, there are as many ads for gold as viagra. And which do you think id more useful? Herd mentality affects everyone - even CEO's of gold companies. I'll take the other side of that trade.
Indeed. Barrick is going to get killed on this move.
Barrick and many other gold companies have been trying to reduce their hedges since gold was trading with a 3 handle.
Jim Sinclair (www.jsmineset.com) has been covering this since 2001.
Uh guys? ...
How many Trillions are in the $1.144 Quadrillion of OTC swaps and derivatives that are ready to implode around the world?
The Bank for International Settlements in Switzerland thinks we are about to get hit dead-nuts-on by a Global freight-train.
Thanks for the heads-up!
Not enough hysteria. Let me know when you're wishing you'd bought at only $1000
Everyone is bullish gold, just listen to the radio, there are as many ads for gold as viagra.
Not true. Recent ZH poll showed that a sizeable majority were still drinking the Fed koolaid and expecting deflation. So yes, you can have the other side of the trade. You and the rest of the herd still expecting deflation. You don't seem to know what a precious metals bubble really looks like. This ain't it.
HAS BARRICK BEEN BARRICKED BY THE U.S.?
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
drowning.
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.
DISCLAIMER AND CONFLICTS
THE PUBLICATION OF THIS ARTICLE IS SOLELY FOR YOUR INFORMATION AND
ENTERTAINMENT. THE AUTHOR IS NOT SOLICITING ANY ACTION BASED UPON
IT, NOR IS HE SUGGESTING THAT IT REPRESENTS, UNDER ANY
CIRCUMSTANCES, A RECOMMENDATION TO BUY OR SELL ANY SECURITY. HE
HAS NO POSITION, LONG OR SHORT, IN BARRICK STOCK, NOR DOES HE INTEND
TO ACQUIRE ONE. THE CONTENTS OF THIS ARTICLE IS DERIVED FROM
INFORMATION AND SOURCES BELIEVED TO BE RELIABLE, BUT THE AUTHOR
MAKES NO REPRESENTATION THAT IT IS COMPLETE OR ERROR-FREE, AND IT
SHOULD NOT BE RELIED UPON AS SUCH.
References
Have Gold Bugs Been Barricked by the U.S.? www.gold-eagle.com/gold_digest, July 12,
2007.
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,
www.goldensextant.com, May 12, 2002
Richard Rohmer, Golden Phoenix, the biography of Peter Munk, Key Porter Books, 1999
Antal E. Fekete, The Texas-Hedges of Barrick, www.professorfekete.com, 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, www.gold-eagle.com,
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 _almanac.tripod.com/bushgold.htm
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: feketeaustralia@gmail.com ,
On the Gold Standard Institute, e-mail philipbarton@goldstandardinstitute.com
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 www.Amazon.com and from the Club
www.economicclubsf.com 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
Interest)
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 www.professorfekete.com .
.
well done sir
I was about to post this myself. I am with in agreement 100% on this article. Fekete is one of my regular reads, along with Doug Noland, Jim Willie, Rob Kirby, Denninger, Zerohedge, etc.
Oh wow I just noticed Rob Kirby is in the video. Excellent. He is a good man.
your list is the same as mine except for noland....
if you are recommending noland with a list like
yours then i can safely add him to mine...
for all - fekete is always a good read even
if you may not agree with him which for me
is quite rare....
if you don't have time to read all of fekete
then read his articles on backwardation and
the gold basis....
Hey, that's MY list of reads ...mostly, plus Jim Sinclair. Now...must check out Doug Noland...
Bre-x? Hell yeah that was a hot one. A Beautiful Indonesian girl came with every share.
Fekete seems like a very angry and very frustrated fellow. I wonder if he knew Peter Munk back in the old days in Hungary? What possible relevance to the topic at hand could Fekete's statement from the above article have?
fekete does not strike me that way at all....he
makes colorful and impassioned cases for
sound monetary science and while there may
be some frustration with foolish and naive
management and policy choices it is hardly
the anger you describe....
your inability to see the link between gold
and freedom is a symptom of your
myopia or profound ignorance of the subject...
barrick's potential demise does not bode well
for the fake currency system in place today....
An illustration that gold is always accepted as payment.
It's good to see GATA finally sticking it's head outside of the gold market and looking at the wider market to understand better how gold fits in it. They have really improved this year.
Barrick is going to settle the contracts in cash. I.E. not gold. That's the crazier news.
Gold shortage, anyone?
All you paper fools will rue the day you ignored my advice to buy physical gold and silver (and what the hell, platinum, too).
I am Chumbawamba.
Agreed. Need to have the physical gold.
Chumbawamba when are you going to get an avatar?
Might I suggest the following:
http://images.coveralia.com/audio/c/Chumbawamba-Tubthumper-Frontal.jpg
So, Chumbawumba, where's a good place to purchase gold and take possession immediately? (i.e. I'm not interested in waiting 2-4 weeks for a UPS shipment which I don't really trust anyway.) I want to go someplace, hand them US Dollars, they hand me gold and we're done.
And how should I go about testing that gold to be sure I'm getting what is promised? Mass displacement? conductivity? hardness test? chemical etch? something else??
I'm thinking of Approx $5000 (e.g. 5oz) purchases every month for the next six months or so.
Thx.
Jerry
Shit, I don't know. Open a phone book or justfuckinggoogleit.com. Find a reputable (that's up to you to determine) dealer in your area, get to know them, talk to them at length before you swap dollars for money, and don't deal with them if they don't seem trustworthy.
If you do find a reputable dealer that you come to trust, you shouldn't have to worry about whether the stuff is real or fake.
Your game plan has a flaw: gold will not be @ $1K/oz six months from now. Probably not even one month from now.
I am Chumbawamba.
How does this affect paper? GLD is still going to spike just as hard, as are shares in small and midsize miners.
This is bad for Barrick's shareholders, sure.. But how is this bad for holders of other paper??
Have a read of the portfolios for these ETFs very closely, take the time to understand them, then run like hell.
The key is that these things are backed by unallocated bullion, or in some cases by 'equivalent assets' (just what the hell is an 'equivalent' of bullion? Why, paper of course). It's important to understand that unallocated means that 'your' gold can be used for any purpose by the custodian. Ie, it can be leased to someone else, minted and sold as coins for premium, etc. Your unallocated gold is typically just a paper IOU sitting in a box somewhere meaning that you stand to lose it should that IOU be dishonoured, which *will* happen in an allocation cascade.
People often wonder why unallocated bullion incurs no storage fee. Well, there's the catch, and it's a pretty ****ing big one if you ask me.
An investment in the ETFs is a partial investment in paper to an unknown degree. If the whole paper scam unwinds due to large buyers triggering an allocation cascade, then these ETFs will have holes blown in their 'holdings' which will mean they lose the ability to track spot prices, or start trading at a premium.
I will not touch the ETFs with a ten foot pole except to short them. When I want PMs I take physical delivery.
In summary, the risk for paper holders, as GATA have been pointing out for years, is that there is more paper in the world than the metal is supposedly represents. Like a game of musical chairs, when the music stops, a whole lot of paper holders will find no chair to sit on, discovering to their shock that their paper really is just worthless paper.
Indeed, just make sure you have a good place to store it.
Silver is still a good buy.
A great place to buy in bulk: http://www.tulving.com
Chumbawamba, do you have a source that Barrick settles in cash?
It's in the news. Read the articles.
I am Chumbawamba.
I think Prof. Antal Fekete has it right in his recent article:
"Has Barrick been Barricked by the US?" - http://news.goldseek.com/GoldSeek/1252609733.php
For those of you who don't know what the words "barrick" or "barricked" mean, here is an excerpt from one of Prof. Fekete's earlier articles:
We've all been "barricked".... Time to sharpen the pitchforks.
It is gonna get interesting very soon. Second stimuli requests will be the end of the rope for the manipulators and people will be in the streets then. Sad that we may have to thank China for being the only one willing to come out of the closet to call a spade a spade (no ref to the O there - sad that I have to qualify that statement today, but you do). I'm smelling a big bank holiday as the only reasonable exit strategy.
Well just make sure to give us a heads up with the odor is getting strong...
just another reason why canada will be "merged" into the US by 2020
I'm sure this is an oversimplification. Given that the Chinese have lost confidence in the USD and they are accumulating Au with the intent of establishing the RMB as a stable international currency as the FRB and UST crash the USD. Furthermore, the spot price of Au is at a nominal peak price around US$1k. And the RMB has been artificially "managed" by the PRC to be relatively stable to the USD. Would it not make more sense to convert USD to RMB than to Au? If the price of Au falls, or dollar is strengthened, your RMB holdings would also hold their value while Au prices fall. Yet, if the PRC does decouple from the USD, your RMB holdings would retain the value they had in current USD, or even increase in value, just as the value of everyone else's USD holdings collapsed. Make any sense?
i'm not sure china can absorb that many dollars
in yuan...besides what would they back it with?
the dollar is backed by debt and the faith and
good credit of the us....whatever the crap that
means...
no, gold is money and i think china gets it...
I agree. The gold market is miniscule in comparison to the FX market, although China will continue to diversify it's portfolio.
I believe China is converting USD to RMB at 1:1 and aggressively expanding trade in RMB to compensate. Their aim will be to create a net decrease in USD holdings.
looks like things are just starting to warm up.
How cool! This is just like oil getting fucked over by Goldman last year (http://philsbackupsite.wordpress.com/2009/03/27/the-other-crime-of-the-c...). For all you history buffs, history repeats itself, just not in the same way. Do you see anything that is similar? Barrick is going to die, then gold will F*cking crash.
Think I am full of shit? Goldman destroyed a pipeline company, they can do it to Barrick as well.
your scenario is not all that far fetched....
whether goldman is behind the destruction or
not is questionable insofar as barrick impaled
itself when it started its faux hedging 12 years
ago....barrick's incompetent management is
probably all to blame on this....
if anything, goldman would help barrick's
cause by massively suppressing the price of
gold....
a battle royale will be brewing the next few
weeks over the gold price...watch by violent
swings as the shorts battle the longs...
Nu uh. Gold will go way up. The price of oil was artificially elevated it crashed. The price of gold is artificially suppressed it will go way up.
Congratulations to all the f*ing special people in the world. Apparrently you did not read the article.
Oil was run up way after it should have collapsed. Since you are now "special needs" I will explain my post to you. Gold will now go way up.... hold it .... hold it ... to destroy Barrick.
Jesus Christ. Does anyone read anything before they post opinions? Yes, your mother loves you. You are special. You deserve a trophy. Now please learn to read, stop being lazy, and a burden to your parents and the taxpayers.
Temper, temper. Play nice.
"You said then gold will crash." it could blow to 3000 then crash but it's not going to crash from Barrick fixing it's hedges. Yes I read the article. I think you meant blow out instead of crash.
you need to take your medicine....
the death of barrick would not have a suppressive
effect on gold prices...
Fish, Goldman might be able to destroy Barrick but if somebody with a few billion to spend buys metal with the money and takes delivery, he/she would be able to call the bluff, if there is one.
I do not know who is buying gold nor do I know his/her motivation but lately every move down by some 10$ was followed by a move up of similar magnitude. I doubt that this player will be killed by Goldman.
excellent video....many balls to be juggling at once...
Just watch the ponzex/conex/scamex at the end of each month through to December. I smell a default coming but we will see, we will see. If there's a default then we have launch.
http://www.zerohedge.com/article/guest-post-what-heck-going-china#commen...
Prophecy from way back in 2003: http://www.gold-eagle.com/editorials_03/siebholz062903.html
I remember reading the "Break the Comex" by the Meltdown 2011 back in early 2009 / late 2008... It's like a bad play everyone that is holding their breath passes out "waiting for it".
Yeah, classic boy who cried wolf story. Maybe I'm just a sucker, but I'm running up the hill again this time to check it out, and will keep doing so until Dec. Always like to remind myself that there really *was* a wolf in the end.
Only the BRICs can pull it off, nobody else has the stones or the depth to raid the western CBs' gold.
--Alan Greenspan
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=acrGvxBXPDfk
Greenspan KNEW what he was doing.
Not so sure he really did. If the Fed leased gold through US bullion banks and China stands to take delivery through paper backed by these leases, then the US financial system is about to have its ass handed to it on a plate.
Either the Fed defends the bullion banks and hands over physical gold to China (a nice symbolic transition of power), or the Fed leaves BBs on the hook. It can't be the latter, because if the BBs default on delivery to China, then China will simply respond with 'revenge defaults', something it has already expressed willingness to do, which would trigger a default cascade (M.A.D.). Even if China doesn't relatiate, BB defaults might, in itself, be enough to trigger another default cascade (the biggest threat coming from JPM).
A lot of 'ifs' here, but I'm pretty sure Greenspan did not see this coming at all. The guy is, always was, and always will be, a fuckwit.
And while his asshole offspring continues to sacrifice the USD, he's only going to trigger more dehedging, rising gold prices, and make a default cascade more likely.
I guess this is one of those 'unintended consequences'. The sheer stupidity of it all never ceases to amaze me. In the short term, the only option I see for them to buy more time is to trigger 'flight-to-safety', kill stocks and defend the dollar. Even so, it just delays the inevitable. In the long term there is only one way out of this mess, sell California to China (China's apparent willingness to buy RE indicates the land-transfer is already in play).
Note: everything above depends on a correct read of the situation being that BRIC CBs (uber gold bugs) are declaring war on Western CBs. If that's a bad read, then the golden dilemma will fizzle back to business as usual.
"...Greenspan did not see this coming at all. The guy is, always was, and always will be, a fuckwit."
Or that's what he wanted everyone to believe. Don't get me wrong - I hate Greenspan as much as the next guy - but lately I've been getting the feeling that there was a larger (and much more positive) motive behind doing what he did.
I often think the same (part of being an eternal skeptic), but try as I might I can't see any motive behind CBs and their frontmen other than to deliver the banking dynasties an even greater % ownership of the planet.
Maybe they're all philanthropists and intend to use their stupendous wealth for the betterment of mankind...but fucked if I can see it. All I see is a bunch of parasites whose best efforts pretty much guarantee that we all nuke each other in about 20 years.
You're on the right path Mr. Gekko. The Marxists want everyone to believe it's all greed. Greedy hedge funds, greedy bankers, greedy insurance companies, greedy oil companies...
The idea behind these central banks is to create such a depressed economy so as to be able to then provoke a revolution.
Ever notice how Kudlow refers to Bernanke as one of the "three non-socialist professors at Princeton?" Well, I don't believe Kudlow that he's not.
Same with the lies-man Steve Liesman, listen closely and you realize he is advocating for socialism.
CNBC just had some former fed hack Larry Meyer on, talking about his desire to see Obama ram through the health care takeover.
Greenspan himself is an Ayn Rand ideologue. If you notice, Ayn Rand was promoting the exact same cultural agenda as the Soviet Union, at the height of the cold war. Militant athiesm, destruction of the family, hyper anti-Christian ideas, etc.
Their gameplan is Atlas Shrugged, although they're not planning on forming some remote utopia, they're actually the villains.
Just because gold has always been a store of value does not mean it will stay so forever. Just like the house prices did not go up forever. Just because desert savages in the ancient ages and clueless aristocracy in the middle ages liked how shiny it was, does not guarantee the advances in science will not strip it off its "value store" status. I tell you what, should we ever find a cheap and efficient way of storing massive amounts of energy, energy will become a store of value. Cant stop the progress. I am short term bearish (deflation), mid term bullish (dollar inflation, conflicts arising as poor people get pissed off), but long term bearish from that mid term peak (progress).
How can advances in science ever strip gold of its value status? Spend a few billion on a high energy particle collider and you might be able to create a few new elements in tiny quantities for a few nanoseconds. That's about as good as it gets regarding element creation.
The only thing that can hurt gold's store-of-value status is if we get hit by a meteorite made from solid gold.
I am not saying we will be able to create gold out of something else. I am saying gold is useless for improving individuals quality of life aside from the psychological/societal factors. This, in my opinion, is what makes it vulnerable. Lets (theoretically) say China spends all its foreign reserves and buys up all the gold on the planet. If they did , rest of the world could just say "Ok, you keep it." Is it going to make their military stronger? No. Is it gonna make their GDP grow faster? No. Is it going to make their people not revolt? No. It will actually incur a massive opportunity cost to them as they could have spent the money on buying weapons, technologies or consumer goods that answer Yes to the above questions. I am aware there are industrial uses but they are limited. Gold is the biggest ponzi scheme ever.
I think this is absolutely right, but I'm not sure it's a long phenomenon. Effectively, everything that can be readily bartered or utilized has an inherent store of value. While gold may be bartered, it's utilization is minimal. Contrast that with stored energy and the difference is pretty obvious.
But, I think people are already jumping into the "utilization" basket. For example, how much of the gun sales of recent can be solely attributed to Barrack's (no pun intended) election? What about the sales of survival food and supplies, ammunition shortages, etc.? People are already leapfrogging gold and hitting the "utilization" panick button.
Yeah the kinda people who have a fallout shelter in their basement. "Once the Apocalypse comes, I will decide how many tuna cans I give ya for your gold teeth!"
Since when has it been the purpose of gold to improve the quality of life for individuals? Historically, there is no question of the need for money so as to have a relatively effective, fluid and sophisticated economy (something better than simple barter). The question then is, which form of money best accomplishes this goal? Given gold's history of doing this better than any of the alternative for two millennia and better, I'd submit it be the best alternative. Now ask yourself if the existence of money can improve the quality of life for the individual? I'd answer, yes. That being the case, when it comes to the ability of money to improve the quality of life, then gold appears to be the most effective form of money to accomplish this goal (in an ancillary fashion) for both the individual and the community in which the individual resides.
this is standard gibberish taught in colleges
and spouted by charlatans and fools...
gold will ALWAYS be a store of value...
it's value has NEVER depended upon subjective,
arbitrary, or psychological sentiments - ever....
energy will never become money - ever....
gold is at all times and in all places money....
energy lacks the properties needed to be money...
the only advance in technology which would strip gold
of its value as money would be a triumph of
alchemy or the visitation of rumplestiltskin....
gold is money because of objective, measurable,
and real properties....
without meaning to be offensive you
have absolutely no understanding about money..
Can't find no arguments there, sorry mate.
What are the unique properties (besides scarcity) that make gold irreplaceable in day-to day life of our society.
I am sorry if I threaten your world view but I just don't see the fundamental under gold. You take for granted that there will always be someone willing to buy it from you. This can only be true if there is a real, fundamental use for the thing. Enlighten me, what is it?
you don't get it....
gold's industrial and utilitarian values have
very little to no relationship to its value
as money....
you fundamentally have no understanding
of money....a triumph of our educational
system and brainwashing....
a) i am european
b) i dont have college
c) i am fond of taking contrarian position in discussions
you are quite hostile, chill out
People need a store of value. Gold is and will remain an excellent choice as a store of value. Are you curious why gold is and will remain a store of value?
Perhaps you could find a good start here - (http://fofoa.blogspot.com/2009/09/evolution.html).
We are getting recursive here.
Hang it on your wife, it is called jewellery.
The explanation is biological. We evolved to desire assets such as gold (rare and stable). The 'value' is political power which leads to greater breeding success.
For evidence that gold-lust is pretty much programmed into our genomes look no further than the fact that human society defines gold as valuable across time and cultures. It's like language, music, art, basic code of laws: these things arise spontaneously, the exact same way in geographically isolated populations because they're based in genetics.
You can argue quite reasonably that gold has no real 'value', but you'll be trampled by an endless herd of people who beg to differ.
*cut to hip-hop artist* "bling 'n' bitches y'all"
"You can argue quite reasonably that gold has no real 'value', but you'll be trampled by an endless herd of people who beg to differ."
Correct. Will it stay so forever? Genetics change, thats how we came about.
Who cares? Only the next 100 years matter for any of us.
Ratava,
Your question really is this: what is money? I suggest you read about the history of money. My short answer to your difficulty is this: is it more rational to accept as valuable a chunk of metal that has been accepted by humans as valuable for thousands of years, or to accept as valuable a piece of paper with ink sprinkled on it, which requires men with guns to enforce its value via legal tender laws? Which is more rational?
Yes, I take for granted that there will always be someone willing to exchange it for something else (you can call that "buy it from me" if you want to). As for pieces of paper with ink sprinkled on them? History is not so kind, mate.
Thank you, that is a very good answer. I agree that as a historically established exchange medium that is impossible to counterfeit, gold has its place in the economy now. So as the amount of available assets on the planet increases while the amount of available gold stays the same, you will be able to exchange more and more assets for your chunk. Ok, that is reasonable.
The gold price was in lockstep with oil and was looking ready for the goldman 2000 call. The next pump and dump.
Obviously you don't get it. Goldman cannot call for gold 2000...
0725 GMT [Dow Jones] Goldman Sachs says declining real interest rates pose upside risks to its 12-month gold forecast of $960/oz.
At the same time Barrick also sold silver and Sumitomo hedged itself up to 1700+$ gold. And incidentally, Goldie is a shortie` also. And there is a link to LT yields on top that LS has "studied" in the past as set by the IRS book outflow nowdays. The combined (naked) short is at record levels and growing as we speak. This was in fact a gold - not credit – crunch all along. Yes the price will turn, but only the one produced by and of precious-less paper. The price of naked unaudited (un)delivered into special accounts of nothing. Then there is that other »price« to consider. ZH, some diligence was long due.
What Conundrum? Sell high, buy low. Sell your stock at the top of the gold equity boom to generate max cash and then over the next few months buy your gold back at the low of the gold market, say 650 to 680, to maximize the use of the cash. Then you are perfectly positioned for the next gold boom.
China is not purchasing gold. China is producing gold.
From: Asia Times, 7/21/07, China Business -The National Development and Reform Commission (NDRC), China's top industry regulator, said that the country produced 122 tonnes of gold in the first six months of this year, up 15% from the same period a year earlier. The NDRC said in February that the nation's 2007 gold production will reach 260 tonnes, which would be another 8% annual increase. It projected that total gold production in China will be 1,300 tonnes from 2006 to 2010.
Asia times, 9/9/9 China Stirs Pot of Gold- At the recent Group of 20 London meetings, China called for a new international monetary order with a gold link. This was followed by the sudden disclosure that China had used part of its huge gold output to boost its own reserves by some 600 metric tons, a 75% increase in total holdings since 2003.
The poorest sources for information about China and gold is from coin and bullion dealers and their supporting advertising agencies.
what a profoundly ignorant statement....
producing and purchasing are not mutually
exclusive activities....and your posting proves
that point.
Wrong, recent former Politboro member confirmed that China is buying on the open market. Indeed they're having trouble not disturbing the price.
Waterdog, do you have any information that the Chinese-mined gold leaves the country?
They are producing and putting it away in a vault or sell inside the country, see their advertisement offering it to their people.
Barrick's short position was last reported officially, as far as I can find, here: http://www.reuters.com/article/companyNewsAndPR/idUSN2621656820070926
Fekete has been wondering aloud for years why any producer would so aggressively short their own product. Perhaps they thought to buy up properties at reduced prices? The Kirby interview is clear and unequivocal; Barrick's plan is short a few $Billion, and we are puzzled. Maybe they will announce yet another adjustment soon? It's a pity (not) they chose to short into a generational bull. Did someone assure Barrick they "had their back", or is Barrick management merely stupid?
Barrick's earnings calls are very interesting. Here's a link to an extended excerpt I posted as a reply to an article at seekingalpha which touted the wisdom of Barrick management: http://seekingalpha.com/article/123205-barrick-gold-nails-the-hedge#comm...
Many of us have been not-so quietly waiting for this day. I hope Barrick chokes to death in a loud, ugly and public manner.
I'd also like to note that I share Kirby's assessment of interest rate swaps, which make up by far the largest portion of the global derivative book. They are net neutral only until somebody's fiat currency blows up, and in that event they guarantee that all fiat currencies blow up. Are any of you old enough to remember Mutual Assured Destruction (MAD)? It's kind of like that, except we don't glow afterwards.
If you read history, you KNOW that fiat currencies always blow up, with a life expectancy of a few dozen years. The U.S. has in fact defaulted twice in the past 100 years. Once in 1933 when gold was stolen and revalued, and once in 1971 when we stopped honoring gold contracts. So gold isn't money, huh? A barbarous relic? A commodity? Laughable.
One theory doing the rounds with the tin-foil brigade is that Barrick was always just a front for bullion banks. An insurance policy if you will. If BBs, participating in the carry trade, suddenly found themselves in an awkward position due to rising demand, then they could just expand Barrick's hedge. Who, but the GATA-heads (who nobody listens to) would argue with the biggest miner forward selling?
Not actually such a bad theory, but I don't subscribe to it myself because BBs have already demonstrated themselves to be perfectly capable of high levels of stupidity in the past by believing forward production targets stated by independent miners.
The most likely scenario is that ABX management were just overly aggressive and forward-sold too much metal to fund their expansion plans (helping them to become and maintain #1 status), and completely failed to model risks correctly. Now they're in the shit and to get out of it, have passed the paper bomb (at least partially) back to the BBs to put *them* in the shit.
The whole thing is a mess, but it provides lots of nice hedging opportunities.
GATA has confirmed links with the Russian government. Probable links with the Chinese government.
You on the other hand are some dude on a internet forum with a bunch of theories. That's all they are. Frankly, GATA has a lot more to say than you do.
Not that I'm a fan of Russia/China... at all.
Most of what I say comes direct from GATA, I link to them regularly, which you would know if you bothered to do any reading other than just looking for a quick troll target. When I say nobody listens to GATA it comes from a decade of bitter experience. You don't remember the excitement leading up to GATA's WSJ expose?
Maybe the BRICs listened and are now acting to break the carry trade. But we don't know that for sure until futures come due. Might also help to remind people that Max Keiser was spectacularly wrong the last time he called a COMEX default. It looks more plausible this time, but let's just wait and see.
Mediocritas, someone stated that comex contracts can be settled with GLD shares instead of metal.
Sorry, I forgot the name and don't want to look it up, but what is that if not a default?
EFP's can be settled in shares of GLD; due to the nature of EFP's, I expect this requires the agreement of both parties. I could be wrong.
GATA reported it here: http://www.gata.org/node/7586
As much as I like what GATA does, they are sowing misinformation here. You absolutely cannot settle with paper. EFPs can be backed by ETF paper (or anything that the parties agree upon for that matter), which is fine because they only serve to lubricate settlement (prevent slippage), the contract itself must be honoured with physical metal.
Some links:
http://silveraxis.com/todayinsilver/2009/07/30/exchange-of-futures-for-p...
http://seekingalpha.com/user/387444/comment/617266
Hahaha, my apologies. Trollin' ain't easy.
Yes, ABX didn't manage their risks, but its really not that big of a problem for them if their reserve estimates are correct. They say they have 138 million ounces of gold in the ground. That's $138 billion worth; it costs them about $450 per ounce to get it out of the ground and saleable. Plus they have copper and silver.
So if they can get out of their hedges at a cost of $4 billion through equity and $2 billion of debt, they will be fine.
"it costs them about $450 per ounce to get it out of the ground and saleable. Plus they have copper and silver."
That is their CURRENT cost of production. I've never seen them represent that all of their "in-ground" gold can be recovered at that cost.
The COTs are able to surpress gold prices because they can open ridiculous amounts of short futures contracts. Is this legal? WTF is the CFTC doing about this. How can Barrick be in business with 9.5 million oz hedged at such low cost?
There needs to be a 2 pronged approach. Those distrustful of the dollar need to convert to physical gold bullion. Secondly, those long futures contracts need to take physical delivery and raid the COMEX. When the vaults at the COMEX are empty and GLD, SLV and Fort Knox are audited we'll see something like the 'Monolith' from '2001: A Space Odyssey.
The Hunt Brothers tried it in 1979-80 before being gang-banged by the banking cartel. A huge short position on silver has been maintained ever since.
http://en.wikipedia.org/wiki/Silver_Thursday
I'm aware of this and covered it on my website: http://www.NumisEX.com/blog/1/2009/8/flashback-hunt-brothers-corner-silv...
In the Hunt Bros case, they singlehandedly cornered a huge percentage of silver market, but unfortunately on margin. What I'm calling for is for all like minded individuals to continually take delivery of physical metals. There will be no public outcry when 100,000 educated individuals take a position against manipulation, fiat currencies and security instruments. What kind of nonsense can they pull when they are peddling paper with nothing behind it?
Amen to that. I particularly want to see a squeeze on silver. Last estimate I saw from Butler was that bullion banks controlled 72.5% of the short position on silver, a concentration that is much greater than the Hunts' equivalent long, yet the regulators have no problem with this. The Hunts ended up in prison, doesn't seem exactly fair.
I had pretty much given up on ever seeing these corrupt assholes get taken down. Only glimmer of hope remaining is China and Russia busting this scam open. How ironic to be depending on them to return the 'free' to free-market.
Can anyone expand on Kirby's claim re: interest rate swaps and JPM's control of this market. What is their exposure (I imagine they are most exposed to rising rates even if their book is hedged b/c rising rates would cause counter-party defaults). Thx for any insights.
I posted Kirby's article in the general forum awhile back. You can search for it and find it there quite easily.
Yossarian: pdf warning:
http://www.occ.treas.gov/ftp/release/2009-72a.pdf
The report looks like a f--king blueprint for Armageddon. Quotes from the report worth mentioning:
The who Barrick Gold buy back is contrarian signal as well as the massive new long intereest in the yellow metal.
http://andystechnicals.blogspot.com/2009/09/cftc-gold-data-speculators-love-yellow.html
http://andystechnicals.blogspot.com/2009/09/ceos-of-commodity-companies-are-not.html
You could have said that in 2005 - and have had your ass handed to you (if you were a bear). Chillax...it's just the next stage of the Gold Bull. The long interest will exceed your wildest imagination (provided CRIMEX exists by then) during the manic stages of this bull.
Read, please:
http://jessescrossroadscafe.blogspot.com/2009/09/barrick-capitulates.html
"One has to wonder what Barrick's management now sees in the precious metal markets, in order to accept this significant shareholder dilution to take down those fixed price contracts now."
My best guess is that China spooked them. The thought of Chinese state TV spruiking bullion sales to the masses would freak me out too if I was sitting on a delivery bomb.
Haha, bring it on.
"There was a bit of a row last year when it was revealed that the rules of the exchange would allow holders of short gold positions to make delivery good in, wait for it, the GLD ETF rather than in physical bullion."
This is a popular myth.
FYI
http://www.gata.org/files/BarrickConfessionMotionToDismiss.pdf
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