"...We have heard today that after selling its
Barrick shares, Munk's real estate company bought
out-of-the-money calls on Barrick shares with an April expiration date..."
FROM FRANK VENEROSO"S GOLD NEWSLETTER:
Surely Asia dishoarding has helped abort the recent rally in the gold price. We hear of a possible new
large producer hedge program. Over the last several days price resistance in large part from Far East
dishoarding turned the gold chart down. This is now generating a return to the short side by computer
driven trend following funds. This is no surprise.
Nonetheless, we believe that conditions are
different this time. Why? Below we list the adverse
shocks to the gold market over the last 1 1/2
years. We then counter with our expectations for
the future course of these shocks.
ADVERSE SHOCK #1- Asian Currency Crises
We have just released our third monthly study on
the Asian currency crises and gold. In each
reiteration of this analysis we have increased our
estimate of the negative impact this crises has had
on the gold market. In the end, the Cassandra
warnings of the markets most vocal bears- Andy
Smith and Ted Arnold have tended to be more or less
correct.In our third pass at analyzing this
phenomenon, we have concluded that this crises may
have depressed the gold price by $60 or more. Most
of this adverse shock has taken the form of
investor dishoarding, chiefly in Korea and
inventory dishoarding by commercials across East
Asia.
OUTLOOK- In our estimation, the inventory
dishoarding by commercials must be largely over,
though it may persist at a reduced rate for some
months to come. Investor dishoarding in Korea has
been providing over 100 tonnes of gold per month to
the market in Jan. and Feb. We expect this
dishoarding to cease by mid year. All in all, such
investor dishoarding and commercial inventory
liquidation, which have approximated 100 tonnes a
month since some time in Q3 97, should dry up by
mid year.
ADVERSE SHOCK #2- EMU Related CB Selling
We don not know for sure whether there has been EMU related official selling in 97. GFMS estimates that several European CBs have sold quantities of gold which have yet to be disclosed. We have our own
special reasons for believing the Dutch were
sellers in 97. There appears to be a consensus in
the dealer community that such selling occurred last year.
OUTLOOK- Terry Smeeton of Bank of England and Chris Stals of the Reserve Bank of SoAfrica have both
predicted continued Euro. CB selling both up to and after the formation of the ECB. By contrast, we
have amassed evidence over the last 6 months that,
once the ECB is created, the French and Germans
will restrain, if not prevent outright, further
Euro. CB selling. Peter Munk and Julian Baring have come back from Davos with the impression that Euro. CB selling will abate in 98. Jean Claude Tricket of the Bank of France has made pubic statements that
are supportive of gold as a reserve asset over the
last month or so. Peter Munk expects that the CBs
of Europe will make a statement to the effect that
financial press allegations of a high level of
Euro. CB selling in the future are without
substance. We have heard today that, after selling
its Barrick shares, Munk's real estate company
bought out-of-the-money calls on Barrick shares
with an April expiration date. This may reflect an
expectation that the Euro. CBs will make such a
statement before early May when the countries in
the EMU and their exchange rates will be decided
upon. The fact that there has been no announcement
yet on EMU selling suggests there is more to be
done. Besides the hints of Smeeton and Stals, we
have received one report that some European selling is to be expected soon. However, after the fixing
of the currencies in late April or May, EMU related selling should abate or stop. On balance, we expect an abatement in EMU related selling in 98 relative
to 97.
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note: more to come |
