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Strategies & Market Trends : Booms, Busts, and Recoveries
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To: Taikun who wrote (57186)12/13/2004 9:32:41 AM
From: LLCF  Read Replies (1) of 74559
 
< Are the I-Banks selling 'naked' if they have hedged their position with a noted from, say, Barrick which guarantees to replenish the short position within 20 yrs? >

Using real world examples would be helpful. If they have an agreement to borrow gold for two years and have a Barrick call expiring in two years they're hedged. BTW... if they have ANY American style option from any producer they can exercise at expiry OR BEFORE.

<If we get to the point where there is no more CB gold to fill the shortfall between demand and current mine production then, at that point, the I-banks may be forced to do all naked shorts (when at present they can do covered shorts), and that will be the inflection point.>

The I-banks wouldn't be 'forced' to do anything??? WHAT are you talking about? If a derivatives trader can't buy any cheap calls, he stops shorting the stock.

<The sinister implications are in the physical market (futures can always settle in cash) where there is no more fabricated gold for the I-Banks to sell into the market.>

That's not sinister at all, that GREAT! The I-banks vol spreads [long calls, short gold] will EXPLODE! They'll make SOIZE!

<So, my point is, the trade does not have to be naked yet.>

WEll, you disagree with all those guys from GATA no?

DAK
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