about gold about dreams and about nightmares
gold-eagle.com
Bill, below is a short version of above, and those who think you are yelling
fire in a crowded threater, or simply saying wolf for attention, they should
read this other opinion of a possible since if it does come true, then all
hell is going to break loose and all you could then say is I told you so.
That phrase I have heard many time: Better a year early than a day late.
Eventho I like the gold standard concept, whether or not it will be revisited
by governments is not my concern since I prepared long ago to be insulated,
and even a USA or world depression will not touch me.
I'am invested in a gold mine in Mongolia, and even tho political games are
currently being played there to protect criminal insiders from paying their
dues, I have hope for this Canadian company, but price of gold is an issue,
and thats why I support GATA. This economic and political stuff not only is
not my bag, but I find it very uninteresting, and only did the gold mine
company by chance thru a prior just by chance out of curiosity.
The stuff on your Le Metropole Cafe to me is something I can't understand why
anyone would spend time in its study because it don't ring my bell or turn my
lights on. Hopefully your GATA will soon get that stained dress or smoking gun
so I can stop reading your stuff. I'am now on my fourth free 2 week trial period.
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
(follows is only the meat of this article, the heart and mind and no fluff)
The situation today
...... we have a situation where the total short position producer
forward selling and the short position of hedge funds could be
anywhere from a low of probably 8,000 tons to perhaps as high as 14,000
tons. ..........
..... question that now needs attention is whether there is a
possible supplier that could satisfy this short demand if POG really
took off..........
... assume an average price of $350 for the 100-300 million oz
purchases by the mystery buyer(s) over the past 5-6 years, the amount
involved ranges from $35 billion to $105 billion..........
.... will this "somebody" become a willing seller again as the gold price
rises through the levels of $350 and $400? I doubt it. The purchases
were surely made with a long-term objective in sight and, just like the
identity of the buyer(s) still being very uncertain, we have to wait
until that the nature of that objective is made known to the world. I
think when it is made public, ..........
... means that there has only been small amounts of gold leaked out
from central banks and now the IMF sale (IF they can get US
Congressional agreement, which I'm beginning to doubt, ..........
..... the nature of the beast of which nightmares are made...
.... to estimate the effect of a steeply rising gold price, it is
necessary to look beyond the positions long and short in the gold
market and to speculate about what would happen if the hedge funds were
not able to buy back the gold they have shorted........
... only partially reliable evidence of what the largely unregulated
hedge funds have been up to, comes from the LTCM case where it is not
clear what is rumour and what is fact. The "facts" seem to be that LTCM
was a hedge fund with about $4 billion in assets. It is thought that
they may have been short of 300-400 tons of gold and that their spread,
or hedged, position in the US debt market (short Treasuries and long
corporate debt was mentioned) amounted to about $120 billion. Later,
stories circulated about off balance sheet positions in derivative
markets that were estimated in excess of $1 trillion.
... disregard the performance of the hedge funds and also the existence
of the remainder of the approximate 2,000 hedge funds and only look at
the implications behind these 62 large funds. In round figures, they are
on aggregate 9 times the size of LTCM, as far as assets are concerned.
If we assume the same ratio as for LTCM in their investment portfolios,
we can assume that they are short of about 3,600-4,500 tons of gold;
they have a combined real hedged position of almost $2 trillion in debt
and other markets and they have an off-balance sheet derivatives
position that approaches or even may exceed $10 trillion.
........... evidence so far suggests, these funds are
leveraged to the maximum, with relatively little cash on hand (even no
cash, if redemptions are beginning to bite!!) then a jump in the gold
price could catch them with the proverbial pants around the ankles. A
very unenviable position indeed!!
........ having to unwind say $4 trillion in hedged positions
and more than $10 trillion on the derivatives markets popping up in his
nightmares, do we really blame Greenspan for his famous quote on how
central banks stand ready to relieve a short squeeze on gold ........
The real nightmare
What nightmare would motivate Greenspan et al to use every means at
their disposal to keep POG down, well below $300/oz, in an attempt to
keep their dreams alive?
What would happen to the US the economic powerhouse of the world if
the nightmare feared by Greenspan and others should come to pass?
........ the situation will be even worse than in 1929 .......
Speaking of effects on a wider front, we now have, unlike in 1929, that
the majority of workers in the world are not engaged in agriculture,
where they could at least stay alive through their own efforts, even if
they had to do so with no new clothes or any shoes at all. Today, for
the majority of workers, if you do not have money, you do not eat.
This, then, is the real nightmare.
A depression much, much worse than the 30's.
The implications for gold
Until quite recently I often wondered why Soros and others of his ilk
did not exploit the situation. Simply acquire a large position in gold
or gold related investments and then announce to the world what you have
done and intend to continue doing. Bingo!!
Every man and his dog also starts buying bullion and gold stocks and the
hedge funds panic and join the eager throng, each one out to grab the
next tidbit of gold or the next 100 gold shares that come on offer. Of
course, supply is very limited as holders of gold or gold shares who are
aware of the fundamentals are sitting back, quaffing champagne to
celebrate their good fortune. They are not even thinking of selling
before POG breaks $1000, still accelerating!! If then.
This means that every large institution heavily invested in all markets
is almost forced to either help keep POG down or to remain on the
sidelines. They simply cannot offload their positions and then get into
gold, as their positions are too large and any attempt to close them out
would trigger exactly the events they want to avoid.
This does not mean that they won't all join the gold rush when it gets
under way that would be the one and only way to self-preservation!
it is just that they simply cannot stir a finger to help gold get its
head start.
The US and the rest of the globe will get to experience what Japan has
gone through the past almost 10 years. In spades.
Secondly, the price of gold will skyrocket.
The only answer will be physical gold and shares in gold mines. (Silver
too! Of course.)
Conclusion
Think kindly of all the individuals who carry the responsibility of
keeping the world on an even keel.
Not only do they have to keep POG below $300, they also have to keep the
lid on inflation to the tune that they will cook official figures for
the CPI??.
They have to ensure that the bond market remains steady and that the
bear trend is reversed and this applies to the US and other major
countries.
They have to ensure enough liquidity to reduce the pressure on lenders
who have bought into Wall Street and the other bourses using
borrowed funds. In fact, people should be encouraged to keep on
borrowing and investing, because the market has to keep on rising to
provide the leverage to afford new borrowings to fund new purchases on
Wall Street.
They have to encourage US consumers to borrow more in order to spend
more, else the steady increase in corporate quarterly profits will
reverse and decline and then even the most ardent bulls will have to
admit the party is over. It will be time to get out the exit before the
rush traffic starts.
They have to manage the currency exchange rates. The yen must not
appreciate too much against the dollar, because then repatriation would
be triggered; yet the dollar cannot weaken too much against the Yen else
the trade deficit goes through the roof.
Somehow, however desirable, the economies of South-East Asia must not
explode into new growth, but must ease into recovery very gradually
else the calamity is on us when investors from this region begin to
repatriate funds from the US.
Would you like to have the job of preventing the catastrophe?
Do you think the people who currently have that job have enough fingers
to keep plugging all the new holes in the dyke?
PS: I end with a question for which I have no true answer, even though I
can rationalise it to myself. What was written here is the first part of
my exploration in search of an answer: Can one in all honesty, knowing
what the results are likely to be, really wish for Greenspan & Co to
fail so that POG could go through the roof??
21 June 1999
Daan Joubert
daanj@mweb.co.za
Copyright 1997 - 1999 vronsky and westerman |
