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Gold/Mining/Energy : Precious and Base Metal Investing -- Ignore unavailable to you. Want to Upgrade?

To: Little Joe who wrote (19657)	9/9/2003 10:31:04 AM
From: austrieconomist	Read Replies (2) \| Respond to of 39344

Little Joe - Commercial gold shorts. Thought you might enjoy this e-mail letter to Richard Russell. Mr. Richard Russell In today's piece (9/6/03) you express surprise and bewilderment about the large Commercials' short position: "Why are the Commercials putting out so many shorts? Are they simply making a "play" against gold, trying for some short-term profits -- or is there some deeper reason why they want gold lower? I don't have the answer to that one." It seems to me that this question cannot be answered simply by examining their short positions. By definition, the Commercials are large companies that regularly acquire gold they need for their businesses--be it jewelry, objets d'art, coinage, semiconductor manufacture, or whatever. These companies fundamentally are not investors, traders, or speculators in gold; they are essentially fabricators of the metal in their basic businesses. If I were a Commercial that had purchased and/or was holding a large gold position, bought at much lower prices as inventory for my business, and had watched that inventory rise significantly in recent months, I might be sitting on a significant capital gain inherent in the higher current value of that inventory. I might then have sufficient reason to establish a short in equivalent amounts to my inventory in order to hedge my inventory. That is, by shorting I would immediately capture the capital gain I've enjoyed in my inventory without having to sell the actual physical inventory I need for my basic business. This would simply be prudent business management and could account, alone, for the current large Commercials' short position. My point is merely that without being privy to the entire financial condition of the Commercials, it is impossible for us to explain the reasons for these large short positions. Therefore, I believe it would be a serious mistake now simplistically to assume that because of the large Commercials' short position we should expect the gold spot price to decline. Antony Herrey