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

To: Mark Bartlett who wrote (42590)	10/10/1999 2:11:00 PM
From: Alex	Respond to of 116790

<<And the commodity market is, as they say, a whole other matter. As they also say on Wall Street: "If you're short, you're caught", but caught doesn't quite do justice to the position some are in after the central banks decided to play in the gold market too. Pickled might be a better word. When the gold price took off after the CB gang decided to limit further sales of gold from their vaults, Wall Street analysts speedily hoisted their price targets to as high as $US300 an ounce. For some of them, whose own firms' proprietary trading desks were very short gold, that might have been wishful thinking. Their targets were overtaken in a few sessions. In recent days the gold price edged back from a two-year high of $US339 an ounce, but traders thought it was pausing before the next big move rather than retracing its steps. Gold option volatilities, a good indicator of price moves, have eased from 50 per cent to 43 per cent on one month options but that's nothing compared with the usual 13 per cent - particularly as more people are caught short in gold than on a Melbourne Cup favorite running last. Gold prices and the share prices of gold miners without hedging problems seem likely to rise further and the increase so far, along with the spin-off impact on other commodities, is forcing a rethink about the outlook for commodity currencies like the Australian dollar with upside now seen to US71 cents near-term and US73 cents one year out despite further weakening in the US dollar. Gold dealers are looking at big losses on their forward books; some gold miners - particularly Ghanaian producer Ashanti Goldfields - have started to reveal the extent of losses on their hedge positions; the banks are adding up their credit exposure to producer and investor shorts (Goldman Sachs is rumored to have a $US105 million exposure to Ashanti alone); and everyone's favorite villains, the hedge funds, are well and truly stuffed ... with short positions ... as are the big investment firms' prop. desks which basically are hedge funds in disguise. It's almost a rerun of last year's problem the hedge-hogs and prop. desks had with the yen-carry trade, otherwise known as the "Tokyo cash-and-carry", which involved borrowing yen at basement-cheap rates, converting to other currencies like the US dollar, borrowing on the borrowings and investing at higher yields in US Treasury bonds. It worked fine until the US dollar and bond prices dropped. The gold-carry trade was version two. Hedge funds borrowed gold from banks at low lease rates of under 2 per cent then sold it, geared up the proceeds and invested in 5per cent-yielding Treasuries. Basically it was a bet that gold prices would fall, so they could buy back the borrowed gold at lower prices, repay the loans and pocket the difference as well as the yield and capital gain on the bonds. It would have been a foolproof money-making scheme if bond prices hadn't fallen and gold hadn't gone through the roof just after the hedge funds' tally of gold borrowed and sold "short" reached an estimated 1000 tonnes (2.2 million pounds), swelling the estimated 3000 tonnes of short positions by gold producers. The question now is (a) how many have covered their short positions, and (b) how many are still taking margin calls. Some experts believe the answers are (a) not many and (b) a lot. With NYMEX raising the margins on gold futures contracts after the close of trading today, the pressure will grow. Rumors abound of hedge restructuring or buybacks, margin calls, problems, big sellers (one major seller offered 10 tonnes of gold, or 3500 contracts, at well above the then-spot price in one session last week), and lease position-covering by the big US banks covering the massive lease positions accumulated over the past few months. In short (no pun intended), the pips are being squeezed tight. So tight that the Gold Institute has been lobbying against the pressure that some cornered speculators apparently are bringing on central banks to reverse their decision to limit gold sales. Meanwhile, there are lots of rumors about who's been caught and they involve the usual suspects like J.P. Morgan, commodities-trading adviser John W. Henry and Julian Robertson's Tiger hedge funds (which dropped $US2 billion in one session last year when the yen-carry trade blew up). Julian Robertson is not admitting to gold problems but he has admitted other problems in a letter to his limited partners revealing that Tiger (one of the biggest hedge funds for rich investors) lost 6.7 per cent last month and is down 23.1 per cent in the year to date. Deserting investors have pulled out about $US5.2 billion so the rest are limited to semi-annual redemptions of the remaining $US8 billion under management, down from $US10.5 billion at the end of June and more than $US20billion in mid-1998.>> theage.com.au