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Strategies & Market Trends : TIMING INDEX MUTUAL FUNDS -- Ignore unavailable to you. Want to Upgrade?

To: Gersh Avery who wrote (39)	2/6/2000 1:48:00 PM
From: donald sew	Read Replies (2) \| Respond to of 428

Gersh, Sure does look like theres an inverse correlation between gold and the NAZ, as you, Bobby and others have noted. seeya

To: Gersh Avery who wrote (39)	2/9/2000 6:58:00 PM
From: pater tenebrarum	Respond to of 428

Gersh, absolutely correct. gold is heavily used in a 'carry trade'. the CB's, feeling they needed a return on the gold in their vaults were very active in the gold lending game in recent years. they would lend gold to hedge funds at minuscule interest rates, who would then proceed to sell the gold they had borrowed and invest the proceeds in the stock market, with maximum leverage of course. as was the case with it's bigger brother, the yen carry trade, this worked well while the PoG continued to fall, as the borrowers are effectively short gold. i know it has been pointed out before, but this has the potential to lead to a major move in the other direction eventually, as estimates for the total amount of gold sold short via the leasing scheme and producer forward sales range from 8,000 to 10,000 tons, about 4 times annual production. in the meantime, the physical market has a primary supply/demand deficit of 1,500 tons annually (newly mined production vs. demand). in recent years this gap has been bridged by a combination of CB selling/lending, scrap and investment dishoarding. additionally the producer forward sales created some 600 tons of artificial 'paper supply' that helped to create the impression that prices could only go one way. naturally, this whole game has a limit, which seems to have been reached. consider this: the CB's of Australia and Denmark e.g. have not one gram of gold left in their vaults. they have lent out 100% of their remaining reserves (they're not the only ones, but two of the more important ones i can think of). the ECB has put a moratorium on gold lending that includes all EU member states, and has capped annual sales at 400 tons for the next five years. the Fed does not engage in gold transactions of any kind. Asian CB's have been frequent BUYERS of gold over the past decade. not too long ago the CB of Kuwait lent out it's entire gold reserve, as a few players came under heavy pressure in the wake of last years price spike. so no help available from that source anymore either. now the biggest producers have begun to cut back dramatically on their hedging programmes due to the Ashanti blow-up. it is estimated that 440 tons of 'paper' supply could disappear that way in the course of this year. the supply/demand picture for the physical metal looks like this for 2,000: supply: 2,500 t being mined. 400 t from the CB's. approx. 500 tons scrap. leaves a supply demand gap of 600 tons that would have to be filled by investment dishoarding. now ask yourself, will dishoarding really contribute 600 tons when even the producers buy back their hedges? in the ST, demand seems to be subject to some price elasticity, as the bear market psychology is still deeply rooted. if that changes, what happens to the 10,000 tons sold short? remember, if the psychology changes to that of a nascent bull market, investment demand will increase in spite of rising prices (or rather, because of them). in view of the massive carry trade, an unwinding of same would of course remove an important source of liquidity for the stock market bubble. this promises to get real interesting, and probably soon. note that the PGM's have moved sharply higher recently, which adds some fuel to the embers.... hb