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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: pater tenebrarum who wrote (68301)	9/27/1999 6:58:00 PM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 132070

Hi Heinz, lease rates have shot up quite a bit, lessening the lure of forward sales True. It has reduced the forward premium making forward sales less attractive to both hedgers and speculators. However it has also made lending more attractive to the Central Banks making more supply available to the market. I think I referenced this in a previous response to Wayne. and today's ECB announcement has lifted a cloud of uncertainty that has been hanging over the gold market. to some degree. But there are a large number of important CBs who weren't part of that agreement. We'll have to see if they give any indication of their plans. i am now assuming that the favorable supply/demand characteristics of the gold market will come to the fore, since central bank selling and leasing has been the main factor pressuring the price of gold in spite of same. just for the record let me say I am not a gold bear. I think the British gold auction marked an important intermediate low in gold. I feel the need to say that because my skepticism regarding some of the more bullish scenarios often leads people to think I am a bear :) However I am not extremely bullish, low to mid 300s at best. I agree that the supply/demand is in favor of gold at current prices but there is a lot of production that will come on line if we see gold get back above 300. I also believe the Central Banks remain overinvested in gold. They may be more restrained in their selling but I believe they will continue to offset the supply shortfall for some time to come. I disagree that central bank actions have been the main factor in weak gold prices. It has contributed but I believe the main factor has been the liberalization of the global capital markets. This is a more comples theory that takes a bit of time to elaborate but we have discussed it on the Currency thread in the past. the hedging by producers was imo just in reaction to the CB factor disagree. a number of major producers take the attitude that they are not gold speculators, that their business is to extract a prodcut and sell it. In the past they have been forward sellers in up and down markets. Also as I said earlier it is my opinion that the weak gold price is the result of factors other than central bank action. and significantly it was mainly producers bidding at the last BoE auction. a few weeks ago I wouldn't read to much into that. Evryone in the market knew that the market would force a concession going into the auction and that prices would recover once the auction was out of the way. A number of producers bought back previous hedges, a very sensible move. But it is a short term trade, not unlike bond traders bidding a Treasury auction after forcing a concession. That said I do believe the British auction is an important intermediate inflection point. if the leases are to be repaid with future mine production, in what way does e.g. a hedge fund that's borrowing gold acquire a claim on said production? do they enter into agreements with the producers? sometimes. they can if need arrange direct agreements with producers. particularly if they are running an arbitrage. the gold swap market has gotten pretty liquid and there multipls alternatives for covering such risk. regards Henry