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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Stock Farmer who wrote (81237)3/15/2001 10:57:12 PM
From: pater tenebrarum  Read Replies (2) of 436258
 
John, this refers to the practice of borrowing gold from a CB at ridiculous 'lease rates', then selling the gold and investing the proceeds in higher-yielding debt instruments or alternatively the stock market. the practice has become widespread in recent years, has contributed to the depression of the gold price, and the accumulation of a dangerously large effective short position in gold - as the loans have to be paid back one day. naturally the carry trade only works as long as the gold price stays flat or falls further.
it is basically a scam, since the gold is sold, and there is no way the loans can actually be paid back in the form of metal...annual global production is only about 2,500 tons, and the gold carry is estimated to be several times larger than that.
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