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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum
GLD 386.47-0.2%Dec 5 4:00 PM EST
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To: TobagoJack who wrote (26920)12/27/2007 8:17:23 PM
From: carranza2  Read Replies (1) of 218232
 
Carefully read this 11/30 article on the growth of gold derivatives:

goldensextant.com

Then think about the implications of a serious amount of them requiring physical delivery of gold. A short squeeze is not out of the question. The author is a lot more lurid than I can be when he concludes that:

The reported figures indicate that the mountain of gold options now almost certainly exceeds 30,000 tonnes -- an amount roughly equal to the world's total claimed official gold reserves. How many of these options are cash settlement only? Have the bullion banks actually committed to delivering physical gold in anything like these notional amounts?

If so, they have put themselves and the fiat monetary system of which they are a part at a new level of risk, one scarcely hinted at in the ongoing unraveling of various forms of credit derivatives. Large players currently content to take paper cannot be expected to remain blind to its risks forever. When they finally awaken to the difference between claims on gold and physical possession of bullion itself, the world is likely to witness a bank run and gold rush of epic proportions.

Producers are getting rid of their hedge books because they are the ones who probably face the obligation of delivering physical possession.

But who knows how these derivatives are structured. Perhaps ibanks and hedge funds have to deliver bullion, too.
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