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

To: long-gone who wrote (66690)	3/29/2001 9:46:22 AM
From: Gary H	Read Replies (1) \| Respond to of 116790

The US and other large banks that had acted as middlemen in the Yen carry, had some knowledge of – or even participated in – the program to keep the gold price below $400. They now saw a new golden opportunity (pun intended!!) since they knew that Central Banks would lease gold at about 1% of market value, or even less. Two reasons applied why the lease rate was so low – firstly, most banks carried the gold on their books at the cost price of about $42/oz, so that 1% on say $400/oz was a pretty good return on book value. Secondly, the “interest rate” that applies to any currency is largely determined by the soundness of that currency. The less subject to risk or inflation, the lower the rate. And gold has since time immemorial been to most sound currency of all – thus justification for the low rate. Soon the Gold Carry was in full swing – hedge funds and others would lease gold from the Central banks and sell this into the market. The proceeds would be used to invest in US Treasuries or even on Wall Street and the profitability was enhanced by the fact that as supply increased as a result of the Gold Carry, the gold price retreated below $400 and started a long term bear market. To cut a long story short, the Gold Carry effectively got out of control and so much gold was leased and sold and disappeared mostly into the jewelry market, from where it could never be reclaimed, that a situation has arisen where it would be catastrophic for the bullion banks and their clients if the price of gold should rise steeply. Many measures have been employed to postpone such a development. After the 1998 Russian crisis, when the price of gold reacted to the new uncertainties by rising steeply, Switzerland announced out of the blue that they would sell half their gold reserves – a very substantial 1300 tons of gold would come onto the market. Strange, though, that it was not a well-rounded press release that contained all the facts. No; it was just a very brief press statement that half the Swiss gold would be sold for humanitarian purposes. Of course the gold price halted any further increase and fell back sharply. Only then did the Swiss authorities complete the statement by saying they would first have to change the Constitution and probably have to survive a referendum on the issue before one ounce could be sold. Even then the sale would be conducted over 10 years, at 130 tons per year. But, of course, buy then the price of gold was already at new lows. Just to make sure that it stayed there, the CB’s of the Argentine and Australia announced during this period that they, too, had sold much or all their own gold reserves, but had done so many months earlier. In the fragile state of the gold market, this news sent the price even lower. iii.co.za!1§ion_id=15508&start=