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

To: marek_wojna who wrote (73031)	7/8/2001 1:22:54 AM
From: d:oug	Read Replies (2) \| Respond to of 116752

Marek, For that which you posted, as follows. "Gold certificates issued by the banks is the prime example, I described it, Hutch denied [saying its illegal]" From: marek_wojna ... is how derivatives works. Bank has [as an example] 1,000oz. of gold. Now they write 100,000oz of certificates collecting and using the money equal to 100,000oz, knowing that people trust the certificate and the chance is slim they will demand all at the same time. ... [if] individual tried the same trick he is going to jail." Marek, I'm next to the last person to know about this stuff, but what you describe above is what i have heard is the way a bank will collect savings deposits from customers and only keep a fraction of that cash in their vault, with the remainder being invested. What fraction is required by law i will guess is between 1/4 and 1/2, maybe less, and what restrictions are placed on types of investments allowed i have come to believe that its too loose or has too many loop-holes, and it may just be that a big chunk is simply loaned out and the bank itself is the sole determinator of risk determination. This above is cash paper fiat money into a savings account, called fraction something for a bank, and your example is about a bank collecting payment to purchase physical gold without the actual delivery, and with the gold being fungible. I'm not sure if a bank can treat this cash as if its the same as a deposite into a saving account. Seems as if its more of a purchase of a good, the gold, rather than a deposit of cash. But then bottom line is that the bank collects money and banks are in the business to "work" the money they collect. But then when you buy the gold, you get a gold certificate that i will assume has nothing connected like a savings account where you collect interest. All of this smoke and mirrors could be poofed away if people only purchased non fungible gold from a warehouse that can not take your money until they have the physical gold on site to meet your needs. (Edit) Above assumes the bank is selling physical gold they have already payed for and stored. If not then the bank needs to buy the gold and use your payment as the cash needed for the purchase, and this way the bank is just a middle-man collecting a fee, unless its in an agreement with the warehouse.... yikes times 3 If you use as an example a non bank where customers get only that paper certificate and the gold is fungible, then yes what you have described is possible and i think it has happened already as in a place called B + B (?) went bankruptcy because they collected money for gold and shorted or something it and somehow they could not deliver the physical to customers. Seems i remember that what they did was as Hutch says, was illegal. Not sure, but for sure your example has to be illegal, ... has [as an example] 1,000oz. of gold. ... they write 100,000oz of certificates as if for a bank example, for every $100 deposite the bank will invest $99 and only keep $1. But for your example it the flip as for each $1 collected the bank will sell $100 (worth of gold). - something like that - Also, your "This is most simple form of derivative." Hutch knows both the mathmatical formulas and the application towards markets, but the above to me has no appearance of derivatives, but just fractional usage. "I'M STILL WAITING FOR AN ANSWER WHY THEY ARE CHEAPER THEN METAL ITSELF IN THE BANK." This i'm lost to initial conversation, but it seems that it may cost more to buy gold and take physical delivery or keep it non fungible it you allow it to be stored by the agent who may the purchase for you, than if you just buy that paper certificate. Well, does the paper certificate have any restrictions on it, as you can not exchange it for physical "on demand", or is there a time delay, or might you have to pay additional costs to equal that higher price you mentioned for non paper? I'm sure when you open a bank savings account that someplace in the fine print details restrictions or conditions about you withdrawing all your deposites. It would help if you gave a real example, say call a bank and get the costs to purchase the same quanity of gold for delivery to you for pickup as physical and paper. doug