Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: d:oug who wrote (39871)	9/1/1999 2:21:00 PM
From: russet	Read Replies (3) \| Respond to of 116984

Hi Doug, I think the big problem with articles like Professor von Braun and his Rocket School of Economics is they fail to name company names and central bank names and bullion bank names. They spout theories and speculation, and give little if any proof. If we were given company names, we could look at their financial statements to try and find high forward selling risk. None of the gold companies I look at have a large lease position in relation to their total gold assets. The big, gold holding central banks have people looking over their shoulders too. I find it hard to believe that they would lease out more than a fraction of their total reserves without having to answer to their citizen owners (many have released statements saying they are selling gold), and one would think they would take steps to make sure the company they write the contract with, can meet their obligations to return the gold. Defaults would attract a lot of attention, and so far I haven't heard of any defaults. Perhaps you or others have. There can be no doubt that any company borrowing gold from a central bank, and selling it on the spot market has the net result of increasing supply of gold on the market above the existing demand for gold, thus dropping the price of gold. What happens to the POG over the next 10 years depends on how the central banks handle the return of the gold. If they announce they are lowering their reserves of gold, then in effect, they have been trading their gold bullion for something else all along. If they demand the gold back, the net effect is to raise the demand for gold above the supply of gold, and the POG will rise, as a result of the same market forces that has caused it to drop in the last decade. What do you think the central banks will do? The ones I am familiar with (Canadian, Australian,English,Swiss and perhaps others), have been accepting things other than gold and in effect have been selling their gold causing the current glut of gold in the market, and depressing the POG. If you accept this model, there are only a few things that can happen, if we keep relative currency levels constant. The central banks could sell all their gold over the next few decades, thus holding up the supply of gold and keeping the POG at current or more likely lower levels until the supply = demand. I imagine that price will be near the average cost to extract and produce that gold by the more efficient producers at the present time (therefore sub $US200). Or the central banks could demand their gold back, but continue to lease it out again,...status quo. This means that current demand would exceed current supply using present figures, and the POG would likely rise slightly until supply = demand (perhaps $US280). Finally the central banks could demand their gold back, and refuse to loan out anything, or make the lease rates so high, cantango would make no sense. If this happens, the POG would be expected to rise quickly to much higher levels until demand = supply again (my guess above $US360). I think central banks want to get rid of their gold and trade it for more profitable holdings in todays market,...so the POG is likely headed down some more, until the ones that want to sell, finish selling. This could take a decade or more, so I see the POG staying at current levels until miners low cost gold is exhausted. Just some thoughts based on my current beliefs and understanding. I don't think there is any dirty tricks going on here. I think the POG decline can be explained by simple supply and demand economics. The POG decline has been caused by central banks slowly selling off their gold reserves over more than a decade and increasing net supply over demand, and little else except the odd swing in currency values. In effect, the central banks have become a low cost producer of gold (many bought their gold at levels below $US35). Until they stop net sales into the market, current producers are in competition with them.