Ram Rao,
The ultimate effect is that the cb's will have sold the gold, not lent it. If this was their objective, they could have gone to the physical market and sold it, and not bothered lending it out, in effect being carry traders themselves. That would have been far more profitable. So assuming that they wanted it back, and now they are not going to get it back, they will certainly be stopping this lending.
The article you posted alluded to that in fact happening. The value of the shortfall, 14000 tons, mentioned in the same article is about $4.4 Billion at todays prices, so we have a long way to go yet. I think that getting much of the gold back is going to be nearly impossible, and a lot more positions will be unwound that way. Clearly, they can't buy it back, at these prices, and lowering the price would mean more lending or outright selling of gold, which again they won't get back.
There is a shortfall between production and demand which will no longer be made up by cb "sales", and then good things might just happen to the price of gold. Will it go up and when are the two questions, and I feel very positive about the first, the second I'm not so sure.
Sincerely,
Al Cern |
