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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Moominoid who wrote (9893)9/19/2001 10:45:59 PM
From: Cogito Ergo Sum  Read Replies (1) of 74559
 
Hi David,

From one dumb colonial to another ;o)
This is how I understand it.
If one assumes gold is going to stay constant or drop in price.
1 -You 'lease' the gold at low rates
1 m 0.7850%
2 m 0.7838%
3 m 1.2831%
6 m 1.5925%
1 y 1.8525%
These were much lower only last week.
2 -you sell the leased gold
3 -you invest the money from the sale of the gold at nice higher safe treasury rates (higher than the lease rates)
4 -you make the difference as profit
5 -if price of gold stays steady then you keep making the difference as nice safe profit i imagine for life of lease and buy it back at equivalent price to replace the lease obligation pocketing the interest profit..
6 -if price of gold rockets up you are in big doodoo since you are basically short the gold and it costs you more to replace than you got from selling it.
7 -conversely if price of gold drops like a rock :o) you buy it back at the lower price and replace your leased gold. Your profit from the short sale and interest differential.

Basically it's selling gold short and investing the money from the sale in something rock solid. Since I am not in the league to that sort of thing the mechanics may be a bit different but I believe the theory is correct.

Anyone feel free to correct any errors or omissions.

regards
Kastel
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