Interesting Rationale For Temporary Drop In Gold Price
from speculativestocks.com
"Cynical manipulation? Tuesday Gold $292 Wednesday Gold high $301
This past week showed how the players can, with the willing participation of the
regulators, cynically manipulate the gold market to their benefit and the
detriment of the investing public.
In a Reuters news article they stated ? heavy selling by a US Bank forced prices
below $295 that triggered stop loss selling and drove the prices down to $285 in
Asian selling. ( This occurs on Tuesday just before the options expire.)
They further stated ?Prices, lease rates and options volatilities all eased as
the month progressed, taking the pressure off miners like Ghana's Ashanti
Goldfields Co Ltd (AGC.GH), which faced margin calls and a takeover attempt when
its hedge book liabilities became clear.
( The one and two month lease rates dropped down to 1.5%, a far cry from the
average 3-4% this past month, while the 3, 6 and 12 month rates are still around
3.5% )
Monthly OTC expiries sometimes generate heavy two-way business and rapid price
swings before and after the event as options writers juggle their books to limit
exposure?
Then we have this also from Reuters Sydney office?.
The falling market is good for producers who sold forward when the price was
recently high, but bad for those who did not.
``They dance in the street when the price falls because of their hedge
positions,' Goode said of the dominant position of Australian producers.
But gold is far more complicated than this.
Analysts see the UK as being worried about the fate of Commonwealth member
country Ghana, whose largest gold producer Ashanti Goldfields Co Ltd (AGC.GH)
has been hit hard through its hedge book position by September's unexpected gold
price rise.
Ashanti, whose derivatives book was designed to protect against a fall in the
gold price, was plunged into a loss of US$570 million when gold reached $325 an
ounce. Now it benefits from the falling price.
``In saving Ashanti Gold Mines, it (Britain) saves the Ghanaian economy. It
doesn't want Ghana...to fall over, because otherwise it's going to have to
finance its recovery,' Goode said.
This increased pressure on the Bank of England to push the price of gold down,
he said.
From our point of view, by saving Ashanti, who allowed themselves to get into
this position through bad management, they are prepared to penalize all those
who are good managers.
Se we have the Bank of England that has just borrowed 79 tonnes of Kuwaiti gold
to lend ( at least that?s how we view it as this gold from the Kuwaitis was to
be loaned, as we understand, through the Bank of England, thus cynically
avoiding the recent gold lending agreement by the European CB?s.
And they say the market isn?t fixed. We have become increasingly cynical
ourselves about the disclosures by these parties over this past eighteen months,
so much so that we do not see the investor getting a reasonable shake in
anything. The big boys are playing their game and they laugh at the misfortune
of those who actually believe the game is fair.
They colluded to create a price drop and now they collude to stop a price rise
as their members are getting hurt. And these are parties that are supposed to
ensure the markets are fair and open for all parties.
? Keith Goode of Bell Securities in Australia stated the most immediate concern
was the expiry of a large number of ``in the money' over the counter call
options later on Wednesday.?
? Approximately 3.8 million ounces of call options, at a gold price of
US$290.00, fell due for delivery Wednesday night. That will require the covering
of three million ounces, with only 800,000 ounces presently available in the
market.? ( 79 tonnes of Kuwaiti gold adds 2.5 million ounces to this 800,000 to
leave only a 500,000 shortfall if they can keep the price down )
? One reason for gold's sharp price fall on Tuesday night was pressure by the
Bank of England to get the price below $300. At $300 an ounce, 5.8 million
ounces of ``in the money' over the counter call options would expire.?
? Peter Upton, senior bullion dealer at Dresdner Kleinwort Benson, agreed with
the figures and saw in them a good reason why gold lodged at around $290 ahead
of the option expiries later on Wednesday. ?
So those who bet on getting the gold at a higher price are forced out of their
positions because those who got caught the wrong way didn?t want to lose. We
have to assume those who lost due to the price rise had bigger friends than
those who won, so the losers became winners and vice versa.
Producers are as much to blame by selling calls to pay for the puts and this
creates this wealth of paper out there that allows this massive manipulation. (
They wanted their cake and the ability to eat it and have you pay for it ) Those
with vulnerable positions would try to reduce their call options, preferring
lower gold prices if they followed the classic route of selling calls to pay for
puts. ( it normally takes the sale of two calls to pay for a put )
? Goode said Millions of ounces of gold would be called from producers only if
the price of gold rose. That is why most would prefer lower prices in a
continued volatile market.?
But what about those who purchased the calls in the belief the market was fair,
shouldn?t they get to profit. Well no, why should they, they took a gamble and
lost because they didn?t have the political or financial pull to stop the
manipulation. ( Of course this is cynical, It is the reason for the article )
From our standpoint we see no benefit coming from any of these machinations.
Regulators attempt to punish insider trading and manipulation, the legislators,
behind their back actively pursue other policies that destroy their efforts. The
small investor is ground between the two.
Oh Well! No one ever said that life was fair.
But then a ray of light comes along. Homestake, a company we have always admired
for their sound business practices and well managed mines, states ,
?The recent pullback in gold prices is only a correction in the turnaround to
higher prices?, said Jack Thompson, Homestake Mining's chairman and chief
executive officer. However, he said that "it doesn't matter if gold stays at
current prices or goes back up because in either circumstance, the company can
provide shareholder value."
( But at this time the POG is trading in Europe at $301, a gain of $10.00 over 2
days immediately after the expiry of the options. )
He anticipates that it "won't take long" before the lending liquidity in the
gold market reaches a limit. This would push up gold lease rates again and then
the gold price itself, he said on a conference call to analysts.
Thompson noted that he had originally predicted gold lending would reach a limit
in 1.5-2 years time. However, with the recent announcement that the European
Central and Swiss banks will limit gold lending, this limit is more likely to be
reached within 6 months or even 6 weeks, he
said. Thompson said he was nevertheless disappointed by gold's dip from its
recent highs, noting that "people's hopes were spiced up when the price ran up."
However, he said that the "jury's still out" and suggested that the current dip
is simply a correction in an overall turnaround to higher
prices.
We commented earlier that the price paid to Kuwait to free the 79 tonnes of gold
( about 2.5 million ounces ) would be high and all to keep a bunch of scoundrels
from losing the ill-gotten cash they had gained from manipulating the market in
the first place. And who pays? Well you and I of course."
Joe |
