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

To: Sunny Jim who wrote (55657)	7/3/2000 6:36:14 PM
From: pater tenebrarum	Read Replies (2) \| Respond to of 116770

S P, simply put, a rising gold price equals a vote of no confidence in the value of fiat money. that makes gold the enemy of the statist money printers, as they like nothing better than print more of their fiat money in ever increasing amounts (a necessity to keep the whole credit and asset bubble spiral going). you just have to take a gander at the credit market report i posted earlier - M3 is once again growing at 9,6% annualized, so gold better stay calm. then there's the gold leasing market, which has evolved into a giant carry trade, a gold shorting bubble of sorts. while it is not quite clear when it started in earnest, it has now ballooned to daunting proportions...basically CB's are lending out their gold for 1-2% interest, the borrowers sell the gold, and re-invest the proceeds in higher yielding govt. bonds or stocks. this is all dandy as long as the gold price stays flat or trends lower (which it has done, under the persistent barrage of selling from the leasing scheme and producer forward selling in its wake). however, the bigger such a scheme gets, the more likely it becomes that at some point a covering panic will ensue. we had a foretaste of this in September of last year. according to some estimates, some 10,000 tons or more are shorted in this manner - about 4 times annual production. however, very little of annual production can in effect be used for the re-payment of gold loans, as most of it is used for jewellery. it is therefore an increasingly tenuous situation - the longer gold stays tame, the bigger the leasing pyramid gets, and the more likely it becomes that it will one day implode. imo most of the CB's that have lent out their gold are very likely not going to get it back - the loans will be settled in cash eventually, and the gold be booked as having been sold (which is in effect what has happened to it anyway). how has the gold lending scheme become so big? it has simply snowballed like every perceived free lunch in finance tends to do. and like every other perceived free lunch in financial history, it will turn into a costly lunch in the end for all, or most, concerned. regards, hb