In the past 20 months, precious-metals investors have witnessed both extremes of an adrenaline-packed roller-coaster ride. From the indiscriminate selling that characterized a merciless correction, to the seemingly indiscriminate buying that appears now in something of a gold-market feeding frenzy, neither extreme reflects the discipline required to promote precious investment returns over the long haul.
Barrick Gold (NYSE: ABX ) added more fuel to this scorching hot sector this week, by announcing that it has completed a multibillion-dollar de-hedging initiative well ahead of schedule. Because Barrick Gold sought to remove hedges in time to enjoy exposure to further upside in gold, some interpret the program's completion ahead of time as a message to the market: The world's largest gold miner sees the broader breakout above $1,000 that began in September continuing still further before to begins a retreat.
Is this a new Barrick?
Barrick Gold was wrong about gold when it failed to close those dastardly hedges at sub-$800 gold, even as rivals like Newmont Mining (NYSE: NEM ) were cleaning up their acts. So why should we heed its bullish message now? For the near term, I'm not entirely sure that we should. Barrick Gold's press release indicates an average gold price of $1,070 associated with the de-hedging activities. This suggests that the lion's share of this accelerated de-hedging was realized back in September. The market may be reading too much into this announcement by interpreting it as a signal for uninterrupted strength in gold.
With that said, I believe that Barrick Gold dodged a bullet by unwinding the hedge book before an inevitable advance to $2,000 and beyond. To say that its hedge book made the company unpopular with gold investors would be a stark understatement, and this Fool expressed deep concern in 2008 when it appeared that executives were tripping over themselves to sell company shares. Under new management in 2009, however, I see a new Barrick Gold.
Aaron Regent moved to the top job at Barrick from a stint as senior managing partner of Brookfield Asset Management (NYSE: BAM ) and co-CEO of Brookfield Infrastructure Partners (NYSE: BIP ) . As a former Brookfield shareholder, I have deep respect for that company's management culture. I also owned shares of Falconbridge when Regent presided over a lucrative takeover by Swiss miner Xstrata in 2006. From raising awareness about declining worldwide gold supplies, to finally cancelling those painful gold hedges, I see Regent ushering in a positive new future for Barrick Gold.
Where will gold go from here?
I also wish to amplify a warning against trying to time gold's often-volatile movements in either direction. My readers know that speculating about near-term oscillations in the gold price is merely an entertaining hobby, while my continuous fundamental analysis of the longer-term trajectory of this precious-metals bull market is the only call I care about making correctly. One can indulge in near-term speculation, but it takes discipline to limit the scope of any actions taken based on that speculation.
Here's a recent example. I have grown slightly more cautious about a possible correction, because the price has blasted through $1,150 and now even $1,200 with scarcely a hiccup. Although central bank purchases and other fundamental developments remain staunchly bullish for gold's long-term outlook, the dollar still stands within apparent striking range of the technically significant pivot point of 76 on the U.S. Dollar Index (USDX). Besides, Fools like me recall all too well the agony of an 18-month gut check that began in March 2008, and another before it starting in 2006. We have been conditioned by these to anticipate corrections just as the market's excitement builds.
Every time gold ventures into uncharted territory, however, it must be stipulated that no Fool can predict how far a given breakout will run. It's increasingly crucial for investors to have a carefully researched long-term price target in mind, and to tune out the noise of speculation.
I maintain a disciplined approach to my emerging cautiousness. I have skimmed a bit of profit from select high-flying outperformers like IAMGOLD (NYSE: IAG ) , Northgate Minerals (AMEX: NXG ) , and Jaguar Mining (NYSE: JAG ) in recent weeks. I am still resolutely long the sector, but as I've said before, I will never regret locking in profits.
In any event, I expect gold prices to remain in quadruple digits for the rest of this bull market. My cautious approach is reflected in the gradually more conservative posture in my silverminer CAPS portfolio. I am merely communicating a growing near-term cautiousness in the context of my resolutely bullish long-term stance on gold, silver, and related mining stocks. Now that you know where I stand, please vote in the Motley Poll and share your thoughts in the comments section below.