interesting post from kitco (hitting the nail on the head):
Date: Thu Jul 06 2000 16:26
Earl (@ the CPM monographs.) ID#227238:
Copyright © 2000 Earl/Kitco Inc. All rights reserved
Thin_ing long and hard about the operations of bullion banks as outlined by CPM.
The application of fractional reserve banking to the present gold and silver market, ensures that there will continue to be large financial interests whose future success is insured by a manufactured stasis in PM pricing.
Producers were lead into hedging their production with the expectation of limiting downside risk and reducing volatility. What they have not considered is that, in the process of doing so, they have allowed the creation of a major constituency with a stake in seeing to it, that PM producers remain little more than indentured servants to the financial masters they have enabled.
If producers merely sold their product unhedged through bullion banks, the BBs would still be able to engage in derivatives and fractional reserve lending BUT they would be forced to do so without having a lever on the means of production. In turn volatility would remain as a constant threat and they would face a greater risk of failure in the process.
As matters stand presently, many miners are damaged by higher prices and many others are near impoverishment by lower prices. Meanwhile the smiling purveyors of instruments of bondage are much stronger and in a position to marshal additional resources in defense against higher prices. Totally certain they are that, as matters now stand, their naked positions bear little risk of failure.
Until, the miners get the hell out of their hedges and accept risk as a natural part of the mining business, the BBs will remain correct in their assumption.
The CPM writer proudly pointed to proper hedges that protected against the downside and allowed upside potential, for only $10 per ounce of protection. What he didn't mention is that the hedging process itself would greatly enhance the probability of static gold prices indefinitely. At a cost to producers far greater than the cost of the hedge.
It stands to reason that if A lays off risk to B, ..... B will move heaven and earth to insure that the risk has zero chance of eventuating. Such is the simple nature of the deal mines have made with the devil. They are now in a low risk position, in both directions and enjoy little hope of becoming anything but a straightforward industrial enterprise.
Bullion banks through fractional reserve lending, find themselves in a perennial short position with gearing from 5 to 40. It's the nature of the beast. The sellers of hedges are going protect that position by insuring that POG is never allowed to imperil their counter position on the hedges nor ever, ever to inaugurate a demand run on their short reserve position.
There is every reason to believe that govts have held a vested interest in seeing PM prices restrained but it seems to me that it has been a side issue. If miners may be forced to increase production for less income, very little more is required to restrain prices ....... with the exception of favorably negative press coverage.
If the majority of gold miners are still hedged is it any wonder that their stock prices remain in the dumper? Large investors who understand the meaning of financial bondage are not likely to own producers who remain slaves to financial elites.
Its a bull$hit business pure and simple. |
