Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Gold/Mining/Energy : Barrick Gold (ABX) -- Ignore unavailable to you. Want to Upgrade?

To: russet who wrote (3082)	5/29/2002 10:17:10 PM
From: nickel61	Read Replies (1) \| Respond to of 3558

source: Weltwoche 23,5,02 WIESBADEN, May 24 -- JP MORGAN CHASE AND OTHER TOP BANKS ARE HEADING INTO AN LTCM-STYLE DERIVATIVES DISASTER. States Switzerland’s weekly Weltwoche in its latest edition. The article, headlines “The fever rises, and rises and rises,” notes that the price of gold has always been the “fever thermometer” for financial markets. The more precarious the situation turns on financial markets, the higher the gold price. On top of inflation worries and the Middle East conflict, there has been a loss of confidence in the US recovery and the US dollar. Aggressive gold purchases by the central banks of China, Russia, and Japan, in that order, in order to reduce the US dollar dependency of their currency reserves, has also contributed to the rise of the gold price. The high gold price spells trouble for some of the largest banks. J. P. Morgan Chase in particular, but also UBS, Deutsche Bank and Citigroup, over years have borrowed large amounts of gold from central banks. Betting on a steadily falling gold price, they sold the gold and invested the money into high yield securities. When the gold borrowing contract matured, the banks were able to buy the needed gold at usually a much lower price, thereby increasing the profit of the whole operation. For many years, this gold carry trade worked extremely well. Similar methods were used by the gold producers as well. Barrick Gold as an example sold its total production of three years in advance, 23 million ounces. Any further rise of the gold price would now hurt the mentioned banks very badly due to their huge amount of outstanding gold borrowings. At one point they will have to close their contracts by buying gold at a much higher than expected gold price. These purchases again would drive the gold price higher. Once the gold prices surpasses the $330 level, a chain reaction will probably set in. The situation is even more precarious “ as the banks are also exposed to complex financial derivatives as part of their gold tradings.” The banks could therefore run into another disaster like “the collapse of the LTCM hedge fund in 1998” and that’s the reason why the are “not willing to talk about their gold operations.”