"Buy into maximum fear and loathing"
Seems like a pretty good time to be in PMs!!!
You might like this:
Date: Wed Jul 07 1999 23:48
D.A. (a thought on lease rates) ID#7579:
Copyright c 1999 D.A./Kitco Inc. All rights reserved
All:
ANOTHER explanation for the spike in gold lease rates is as follows.
It is well known that the British government hates gold and would like to lead its citizenry into the waiting arms of the EU and the Euro. Given the current loathing for gold by Blair & Co, it is more than likely that of its 715 tonnes ( now 690 ) of reserves, more than half was probably already on loan. Perhaps a number close to 415 tonnes.
When the ECB was formed, it was decided that 15% of its reserves were to be physical gold. The total assets of the member nations transfered to the ECB at startup were somewhere around $60 billion, with 15% being gold. Were the Brits to join up now, they would probably have to pony up around $15 billion given the relative size of their economy and the amount of their reserves. Of this $15 billion, 15% or $2.5 billion would have to be physical gold. At $255/oz this is pretty close to 300 tonnes, or the entire amount of gold that would be left in the vaults ( or is currently in the vaults ) at the end of the auction process.
If the 415 tonnes of gold to be auctioned are already out on lease, then they are already around some pretty girl's neck, or inside a PC, or in some other irretrievable state. If the gold purchaser at the auction, has not immediately relet the physical gold back to the market, then the lending market has just lost 25 tonnes of physical.
The rumors that I heard on the grapevine, are that one entity took down most of the auction. The post auction short attack was a dealer and fund attempt to break the particular entity who had just purchased the gold, and force a fast liquidation. This did not happen, even though the price went down. Combining the two events, no reletting of the physical, and no capitulation to a 5 dollar spike, might lead one to believe that the metal has fallen into some fairly strong hands that is not about to loan it out at 1% for the year. Kind of reminds me of the modus operandi of the Man from Omaha.
If the lease rates do not come back in the next few days, then something is most likely afoot. The market may have been 'disappointed' that there was no upside spike after the auction, but the real story may turn out to be that physical is being withdrawn from the game. If someone has deep pockets and decided to get control of a large block of formerly 'mobilized' gold it could put tremendous pressure on the loan market.
The nightmare scenario for the miners which are hugely hedged is to see the market go into extreme backwardation. When their loans come due for rolling they may have to pay someone a whole lot more interest than had been anticipated.
The central tenet of the leasing game, is that this could never happen, as there would 'always' be physical around for loan should something nasty occur.
As that famous British agent once said, "Never say never again". |
