Simon Dawson | Bloomberg | Getty Images
A mine worker displays a large ingot of gold during the refining process at the Loulo-Gounkoto gold mine complex operated by Randgold Resources Ltd. in Loulo, Mali, Nov. 1, 2013.
George Gero, precious metals strategist at RBC Capital Markets, agrees that a merger between Barrick and Newmont would be good for gold. But he says that’s a function of Barrick’s and Newmont’s different hedging strategies.
Gero points out that Barrick hedges its gold through fixed income sales contracts, while Newmont does not. But instead of hedging fully, some miners use options to partially hedge gold exposure, and all of this bearish options action (selling calls and buying puts) hurts gold prices, he said. So if the combined Barrick and Newmont fully hedge by using fix-price sales contracts to hedge instead, some of the downside pressure on gold would be removed.
“I think it would bring back hedging, and maybe help gold prices longer term,” Gero wrote to CNBC.com.
So how high could gold go?
Dudas notes that gold seems to be having technical trouble at the $ 1,290 and $ 1,300 levels, slightly above where its trading now. But he says that at some point in 2014, “we’ll see $ 1,400 into the $ 1,420-$ 1,440 range.”