Re: "Excess" U.S. dollars being converted to gold by India.
Finally one country seems to have come to their senses. Reminds me of France in the early 70's redeeming US dollars for PHYSICAL delivery of gold from Frederal Reserve hoard, which led Nixon to suspend the US$ gold convertibility at US$37.00 per ounze of gold.... and the price of gold soared!
Given the huge amount of derivative gold paper in the market compared to physical gold itself, one cannot help wondering whether the price of gold is held down by manipulation (intentional or unintentional) of the massive amount of gold derivative paper.
When the banks can operate on a ratio-reserve basis, e.g. lend $20 out against $1.00 in deposits held, it is logical to assume that they can lend gold to short sellers (directly or through intermediaries) in the same fashion.
Banks stay afloat as long as there is no run on the banks, i.e. redemption of the
$1.00 in deposit. Similarly, the status quo in the gold derivative market (and the POG presumably) will continue as long as the intermediaries don't take PHYSICAL delivery of the gold they borrow from the banks.
Marginal gold producers are selling forward years of future production to protect their slim profit margins and by doing so contribute to the CURRENT weakness of the POG. Their action is almost a self-fulfilling prophecy. Newmont Gold seem to understand this and cashed in their hedge for a profit of $90 million.
What would happen to the POG if all gold producers cashed in their hedge profits by buying back their hedges in equivalent PHYSICAL gold ounces??!!!!
What would happen if every investor in gold certificates, whether held directly or through a broker or bank, converted that certificate to PHYSICAL delivery of gold bars, bullion coins, or similar PHYSICAL gold??!!!!
Lately, the gold loan interest rates have been going up and the short term rates are higher than the long term rates (indication of stress on physical gold deliverability and/or bank gold-lending ratios approaching their allowable limits????!!).
Jaakko |
