Dave, a short version of that article in Canada's National Post.
Also, next is a link to a shorten version of another article about gold mines.
beta.siliconinvestor.com
nationalpost.com.
Monday, August 30, 1999, Gold less tarnished than it seems.
Patrick Bloomfield, National Post
... central banks hold the equivalent of 12 years of global gold output
and some are willing sellers ...
But how much of that gold is readily available for delivery free of
paper claims against it ?
There are few published figures, no reserve requirement, no supervision
or regulation and no accountability.
It's the private domain of bullion dealers, central banks, mining companies.
Its creditworthiness ... educated guess ... is that it is bankrupt.
... it has become a trap from which few short sellers will escape,
because "paper claims in the form of derivatives far exceed the
physical metal on which they are based.
... selling pressure from gold borrowed or leased from central banks,
and resold for the accounts of mining companies or financial institutions.
Central bankers apparently report leased gold as "gold receivable" and
lump it together with gold on hand. In his view, much of this borrowed
gold has already been melted down and sold into the physical markets,
and no longer exists in physical and deliverable form ...
... physical gold borrowed from the central banks has been sold over
and over again in multiple transactions.
... of a 6,000 ton to 10,000 ton physical short interest. As at
year-end 1998, 3,600 tons had been sold short by mining companies
against future production, possibly 1,500 to 2,000 tons would be
payables of jewellery fabricators, and the 1,000-ton to 3,000-ton
balance speaks for speculative positions held by commodity funds,
hedge funds and financial institutions.
The mining companies' role speaks for a further paradox. The more the
price falls, the lower the value of producers' reserves (against which
they have sold forward) and the lesser the creditworthiness of their
forward sales.
... short position that represents US $40-billion to US $80-billion
of capital at risk. A short covering rally of $50 to $100 an ounce
would cost US $8-billion to US $16-billion.
Come any significant increase in financial market tensions, which have
already sent gold lease rates upward (and thus eroded gold's role as a
source of cheap finance), a further sharp rise in lease rates could wipe
out the profitable spread that has helped propel gold prices lower.
"National Post Online is a production of Southam Inc.,
Canada's largest publisher of daily newspapers." |
