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

To: LLCF who wrote (53952)	6/8/2000 4:39:00 PM
From: pater tenebrarum	Respond to of 116790

David, in the case of the gold market one has to consider imo that the 'paper' market is many times larger than the physical market. the ability of producers to deliver in the future may not be the question - the problem is that they incur paper losses on their forward sales and write calls/buy puts strategies in the here and now when the price spikes. the problem with hedges generally is that somewhere there has to be somebody assuming the risk. in a zero sum game it is impossible to remove systemic (counter party failure) risk. as for the borrowers of gold, some are hedging their exposure of course, but once again, someone is taking on the risk. most are probably not hedged, since the point of the carry trade is to earn money on the rate spread and once you pay up for a hedge it may not be worth it anymore. the carry trade is a great thing while prices are falling...the problem is, the lenders will want their gold back one day, and the overall size of the leasing scheme has become too big. if anybody should break ranks and try to cover, you'll hear a big sucking sound. will the lenders get their gold back? we'll see...:)