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

To: John Hunt who wrote (40098)	9/7/1999 12:53:00 PM
From: Alex	Respond to of 116972

Dow Oct. 99 Crash Chart................... dowguru.com

To: John Hunt who wrote (40098)	9/7/1999 3:01:00 PM
From: baystock	Read Replies (2) \| Respond to of 116972

Tight gold loan rates seen heartache for shorts NEW YORK, Sept 7 ( Reuters ) - A spike in gold loan rates makes bets that the metal will continue depreciating costly, but many gold books can probably swallow big funding losses without panicking the market into serious shortcovering, analysts said. The bullion market was mulling the unexpected sharp tightening on Friday, which put short-term gold lease rates at their highest since late 1995, when a massive producer hedge caused them to soar and gold prices to hit their highest levels of the 1990s in the aftermath. Bullion prices have been wallowing near recently set 20-year lows and rates have slipped since Friday. But some dealers predict continued tightness will flush out some of the massive shorts put on to take advantage of what was a cheap way speculate on price weakness and fund investments in higher-yielding paper assets. "One fear of the market for many years is that at some point with all this gold that's been borrowed and sold forward, that there could be a rush with everybody trying to get out the door at the same time to cover those. That hasn't happened," said William O'Neill, director of futures research at Merrill Lynch. "Lease rates can be bullish and can be bearish. We've recently had both sides of the equation," he said. Implied one-month gold lease rates hit 3.94 percent on Friday, jumping 73 basis points in a day. This slashed the premium, or contango, speculators and hedgers earn to sell gold forward and place the receipts in intruments like U.S. Treasury securities. The rate rise was less pronounced for longer loans. Short-term leases were under 1.0 percent early this year and have been rising steadily since Britain's May bombshell that it would sell more than half of its 715-tonne gold reserves. "The implications are somebody is going to lose a lot of money," said a chief dealer. "Under normal circumstances, you would have seen higher prices. But I think what happened is the whole fear of what central banks are going to do next is capping the market." Higher lease rates can lead to higher bullion prices if shorts find the costs of rolling their positions month to month too penalizing. Producers also might take profits on forward sales of yet-to-be-mined metal. "When you close out a hedge program you are buying forward, and higher lease rates mean lower contango rates and that means it's attractive for people to buy. That could create a little bit of activity in the spot market," said James Verraster, head of mining finance at Standard New York. Analysts said the last time lease rates were this high was in in the wake of a massive 227-tonne forward sale arranged in 1995 by South Africa's Western Areas Gold Mining Co. Ltd. "I remember vividly how lease rates went to 6 percent and contango went to zero. We are down now at 1 percent contango in the one-month, which is very close to where it was in November 1995," Verraster said. On the other hand, many of the current shorts were put on when prices were much higher and those positions may enjoy some profit cushion to offset funding losses, analysts said. Also, for central banks and bullion dealers -- which lubricated the skid by loaning gold that would otherwise sit in vaults earning no interest -- the rate rise can mean more income, at least until the collapsing contango eliminates incentives for sellers. Bullion prices hit $417 an ounce in February 1996, the highest in six years, and have been in steady decline since. They have shed 13 percent since Britain's announcement, bottoming at $251.70 about two-weeks ago, their lowest since mid-May 1979. Bullion was around $255 an ounce early Monday. "If you are asking me do I see anything out there that gives people a reason to buy gold in a big way? No," said Verraster. "The conditions now are different than they were ( in 1995 ) . There is just too much hanging over the market still for it to go back to $350 or $400." Tightness has been partly laid to central banks reluctance to lend because of Year 2000 uncertainty. Also record demand from foreign jewelry makers and hoarders as gold got cheaper, means there is less supply of idle metal to lend, hoisting loan costs and forcing bears into the costly financing trap. "Historically people would have held gold in say Loco London ( warehouse ) accounts and relent to the market," said Ian MacDonald, manager of precious metals trading at Commerzbank. "But that isn't happening anymore because you don't have western investors holding gold. It's all going under the mattresses in the Middle East, Far East and India." canoe.ca