Bill and Ken:
The hedge books of the largest and best funded gold companies are enormous. They are aided by the willingness of the CBs to lend up to half of their hoard. The momentum of this short has enabled speculators to scramble onto this bandwagon, thus adding to the physical imbalance.
I believe the generally held view on the street that gold is being demonetized, is no longer relevant, and is being dishoarded by the CBs, is largely fostered by the resultant price action, and not rooted in fact. On the whole, there has been no net sales of CB gold in recent years. If anything, accumulation has shifted to the East.
This trend of loaning out physical will not continue indefinitely. On the contrary, I believe the tide will recede and eventually turn, probably with a vengeance. At some point, the Bullion Banks will find themselves in a bind they can't extricate themselves from. Either gold spikes and they're caught having to deliver high priced bars back to the CBs, or their producer clients will go belly up before the spike, leaving them holding the empty bag.
Ken, your suggestion of an agreement between producers to shut down all higher priced production in favor of just recycling it from the CBs at low cost has merit, however, consider the opposition GATA is targeting. Certainly these groups would be hungry to point out any obvious "counter-collusion" in the market. For this reason, it would be difficult for GATA to propose such a scheme, IMHO.
Bob |
