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

To: tyc:> who wrote (44509)	11/3/1999 10:30:00 AM
From: Alex	Respond to of 116947

The Systemic Risks of Gold Speculation [3 Nov 1999] On the 2nd of November, the London Evening Standard ran a story in its first edition and online at thisislondon.co.uk about gold speculation. The story, part of the City Editor's Commentary, was replaced in later editions by a story about how Chancellor Gordon Brown's plans to allow up to 10 employees in a company to get up to œ100,000 of share options tax free would complicate taxation. The gold speculation story wasn't even in the printed version of the newspaper that I bought. Remember how "currency speculation" brought down several "Tiger economies"? The lending gap that brought grief to gold [London Evening Standard, Nov 2] by ANTHONY HILTON City Editor "...the degree of speculation in the gold futures markets had reached quite astonishing levels. The dealing report of the London bullion market for September, for example, says: 'The average net daily clearing turnover in London rose by 2% in September to 37.1 million ounces (1154 tonnes), the highest level this year.'... " The total annual world gold production of 2500 tonnes covers only two days of this trading! "Perhaps to get more supply, but more likely just to turn a profit, most of the world's gold producers have been bounced by the financial community into selling their gold production forward, many on a quite heroic scale - not just Ashanti, which is now in trouble, but right across the industry..." "What caused the turmoil in the market, therefore, was not the decision by the central banks a few weeks ago to stop selling gold. Rather it was their decision to stop lending gold that caused the huge rise in price and, of course, has left a large number of those short of the metal with no mechanism to deliver on their commitments." The article went on to say that the problem "runs a lot deeper than any of the authorities are prepared to admit in public". There would appear to be significant risks to gold producers who have borrowed gold and hoped to buy it back at a lower price; a trade which incurs losses, possibly large, should the price of gold rise. There would appear to be significant risks to financial institutions who have engaged in similar activities. Perhaps the gold article was too hot to handle? The implications of systemic financial breakdown are much more important in my opinion than the Brown tax story. Was the gold speculation irresponsible or badly researched? Well, it was presented by the City Editor himself, and the London Evening Standard is no small publication. If you take the tube train into the City of London during rush hour, you will very likely see it being read by smartly dressed City people. Article in full: The lending gap that brought grief to gold by ANTHONY HILTON City Editor The risk of a rapidly rising gold price (aka a 'disorderly market') is one of systemic importance. The best explanation I have seen of this is the one given at The Privateer: "In any discussion of the future of Gold, or of the price of Gold, the first thing that must be realized is that Gold is a political metal. In the true meaning of the word, its price is "governed". This is true for the very simple reason that Gold in its historical role as a currency is fundamentally incompatible with the modern worldwide financial system. Up until August 15, 1971, there has never in history been an era when no paper currency was linked to Gold. The history of money is replete with instances of coin clipping, printing, debt defaults, and the other attendant ills of currency debasement. In all other eras of history, people could always escape to other currencies, whose Gold backing remained intact. But since 1971, there is no escape because no paper currency has any link to Gold. All of the economic, monetary, and financial upheaval of the past 28 years is a direct result of this fact. The global paper currency system is very young. It depends for its continued functioning on the belief that the debt upon which it is based will, someday, be repaid. The one thing, above all others, that could shake that faith, and therefore the foundations of the modern financial system itself, is a rise (especially a sharp rise) in the U.S. Dollar price of Gold." users.dircon.co.uk