Dear Jill Leyland,
I want to thank you for your reply to my note. In your reply you stated that
:
"We have seen no evidence to suggest that the gold
market is being manipulated in the way that GATA suggests (I can assure you
that if we had we would be protesting loud and long). Neither do people who
have carried out detailed statistical investigations of the market - such as
Dr. Jessica Cross in a report we have recently published and the Gold Fields
Mineral Services consultancy - believe that any conspiracy exists. "
I must ask if you have read " 9/10/00 Reginald H. Howe - Jessica
Double-Cross Study Puts Q(uisling).E.D. on the World Gold Council. " You
can read it at : goldensextant.com
In case you have not had the chance to read it I will share with you an
excerpt :
"Speaking about the US$243 billion total notional value of gold derivatives
reported by the BIS for the major banks and dealers in the G-10 at year-end
1999, Ms. Cross asserts: "[W]e believe that this outstanding position should
not be described as 'exposure' as it certainly could have negative if not
alarmist connotations. A more objective reference would be a commercial
banking presence in gold-based derivatives." She is entitled to her (wrong)
opinion, but it does not change what the BIS and relevant national banking
authorities require. Then, trying to clarify her position with an example,
Ms. Cross proves her error.
A mining company sells 10 tonnes forward through a bullion bank. Assuming
that the bank covers the full amount of its long exposure in this
transaction, she points to a total turnover counting both the long and short
legs of 20 tonnes, which presumably in her view also represents 20 tonnes of
notional value. Then the mining company "elects to buy back 5 tonnes of its
forward sale," and the "bank will unwind the exposure in both legs of the
original transaction." As a result of these two transactions of 5 tonnes,
"the turnover against the whole strategy in that quarter is now 30 tonnes."
The reader is left to believe that the total notional value at this point is
30 tonnes.
But in fact, the notional value is not more than 10 tonnes. As reported by
the BIS, it would be even less if some parts of the surviving position are
with other reporting institutions. But the surviving position is at most a
long and a short of 5 tonnes each, or a total of 10 tonnes. In Ms. Cross's
fictional world, this position would count as 30 tonnes and require the same
bank capital as a new forward sale transaction by another mining company of
15 tonnes, which including both the long and short sides would equate to 30
tonnes of notional value. Quite obviously, no rational person would argue
that the same amount of bank capital should be required to carry these two
positions, one a forward sale of 5 tonnes and the other a forward sale of
15.
Finally, Ms. Cross suggests that the publicly reported notional value
figures "...are very similar to the enormous trading volumes reported by
Comex/Nymex where we know one ounce of gold gets traded over and over again
but delivered or settled for only once." The proper analogy, however, is not
to volume but to open interest. On an exchange with standardized contracts,
counting the number of open or outstanding contracts gives a good measure of
market size and individual exposures at any given point in time. For
custom-tailored OTC derivatives contracts, summing notional values is an
effort to do substantially the same thing.
So what explains Ms. Cross's flatly wrong assertions about the concept of
notional value? Why did no one at the WGC catch her egregious errors prior
to publication? "Worrying" and "alarming" are the words Ms. Cross uses to
describe the import of the notional value figures if they are what they are
rather than what she says they are. And in this case, worried and alarmed is
just what the big bullion banks with their huge short gold positions are. In
a similar state of concern are heavily hedged mining companies like Barrick,
which as one of the largest producers carries considerable influence at the
WGC since it is funded by assessments on ounces produced. But most worried
and alarmed of all are the politicians. They know that soaring gold prices
mean collapsing political careers. "
END
Jill : I have to ask you and the WGC " what do you think about Reginald H.
Howe's analysis of the Dr Jessica Cross report?
Also , have you had any discussions with GATA on this matter ? I think its
time to
sit down and get to the bottom of this before people start going to jail.
Or could that be the problem :i.e. its too late and someone is going to go
to
jail when all is known.? I never hear anyone point out where exactly is GATA
incorrect.
Do you know? If not ,could you ask around and let me know?
I look forward to hearing from you. |
