Derivatives keep coming back to haunt us. It has been estimated that the Notional value of JP Morgan's total derivative position is roughly 3X the US annual gross national product. Can't even begin to fathom the consequences of unwinding any of these positions.
With respect to gold, GATA and others have estimated that, just like the so called Yen/Carry trade (borrowing yen at ridiculously low rates,and then converting that money into US Bonds, or stocks) which generated a big bandwagon, and then many had to bail out, the gold/carry trade has generated a huge short position in physical/paper gold. (I.e Bullion banks borrowed gold from central banks, sold the gold outright, and placed those funds in US treasury bonds, etc.). This worked for many reasons, including the low cost of borrowing gold,and a declining gold price, since 1997. That gold theoretically may have to be returned to the lenders, Again, many high-powered financial concerns jumped on this trade, a great one unless and until physical gold became scarce, and the gold price began to move up. This is where we are at now, and why a number of us are concerned with what will happen to those financial concerns (including JP MORGAN) who have these large short positions in gold. Not only are we looking at a potentially very large move in the gold commodity/stock sector, but possibly financial strain on those unwise enough to have massive positions on the wrong side.
Regards
Dan |
