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

To: long-gone who wrote (41969)	10/4/1999 11:05:00 AM
From: Henry Volquardsen	Read Replies (1) \| Respond to of 116760

Morning Richard, The few times I have checked Kitco's lease rates they have been different from those I was seeing in the market, sometimes higher sometimes lower. So I would overly rely on their rates. Secondly the Kitco rates are single rates and do not reflect a bid offer. In normal market conditions the lease bid offer is pretty narrow so this wouldn't be a big problem. However in the conditions of last week bid offers widened out significantly. If you are looking at bid offers of 100-200 basis points that will give you a very wide range for the futures price to fall in. In these conditions using Kitco's rates would give an unrealisticly precise result. Thirdly arbitrage opportunities do arise. The futures markets often have their own internal supply demand conditions and prices can fall outside of those indicated by the otc market. I have more experience with this in currency markets. I used to trade arbitrages between interest rates futures and the otc currency market all the time. If an arbitrage can develop in deutschmarks it can develop in gold. Arbitrages don't last long, however, and eventually work themselves out. Finally if lease rates go back up towards the highs of last week I would expect gold to go into discount (backwardation). It is a mathematical relationship and of no great significance to me other than would it says about lease rates. However the gold market, never having seen this, might have a more psychological response. One last think just occurred to me. The idea that a market such as gold which has never been at a discount might have trouble trading that way even though the interest rates call for it is not unheard of. The Canadian dollar has historically had higher interest rates than in the US so forward Canadian dollars always traded at a discount. About a year or two ago Canadian interesr rates fell below US rates. The market was very resistant to trading the Canadian dollar at a dicount and a large arbitrage developed until the psychological resistance broke. The same thing could happen in gold.