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Strategies & Market Trends : Currencies and the Global Capital Markets

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To: paul ross who wrote (1212)	2/3/1999 3:27:00 PM
From: Henry Volquardsen	Read Replies (2) of 3536

Hi Paul, I've been thinking about the a response to this for a couple of days. I didn't want to come of as rude and recognize the concerns being expressed. But my first response when reading the referenced post was to laugh. The notion of an anti-trust action against the Fed on this subject is, frankly, silly. He will be laughed out of court. The notion that the world's central banks are colluding to depress gold prices is silly. They have significant gold assets and have no incentive to destroy the value of this asset. The arguement generally made is that they hope to control inflation by keeping gold prices depressed. This is economic reasoning straight out of 'Spinal Tap' (you know the bit where they are louder because their amps go to 11 when everyone else only goes to 10). At best gold reflects inflation it does not cause it. There really is no rational reason why the central banks would wan't to depress gold, it serves no purpose. Many of the gold bugs point to gold leases as if they were some sort of insidious transaction being used for malign purposes. This is a misunderstanding of what leases are and how they are used. They are simple transactions and nothing more than a financing transaction. He implies they represent a massive short position hanging over the market. What they actually represent is roughly one year's worth of supply that has been presold into the market. When the gold is produced it will be used to repay the loans and returned to the CBs. This has been functioning smoothly for years. Preselling production into the market is not at all unusual. It is in fact common to all commodity markets. My belief is the only reason it generates so much misconception in the gold markets is because of the emotional context in which so many people view gold. So I think this looming anti-trust action will go nowhere. I mentioned it several friends in the biz and they all just got a chuckle. Regards Henry

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