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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: ThirdEye who wrote (13384)	10/13/2004 12:15:53 PM
From: mishedlo	Respond to of 116555

Heinz on Gold COTs and GATA Date: Wed Oct 13 2004 10:44 trotsky (art_vandila@short position) ID#248269: Copyright © 2002 trotsky/Kitco Inc. All rights reserved your question needs to be rephrased, since there is an offsetting long position for every short position in the system. thus you should have asked something like 'has the amount of outstanding derivatives in gold declined on account of the miners covering hedges?' - and the answer to that would be no - it has increased further. that by itself doesn't tell one anything however, since one can e.g. cover a hedge like a forward sale by entering into an offsetting derivatives transaction ( e.g. the buying of calls, or some other forward buying mechanism ) . so in that case, the hedge would be 'taken off', and yet, the amount of outstanding gold derivatives would have increased. what one would expect to have decreased is the amount of outstanding gold LOANS, since at least part of the hedges have been taken off by straight-forward deliveries. as far as i know, this is indeed the case, although the data are largely estimates, and can't be independently verified. however, note that the WAG contains a clause that states that the CBs party to the agreement may not increase their gold lending volumes beyond the amounts outstanding at the time of the agreement coming into force. all of the above is a good reason to take GATA's claims with a big grain of salt, although i wouldn't go as far as declaring everything they say to be bunk. one claim that has been disproven in its entirety was the one about COMEX futures being used as a 'pre-emptive' selling tool ( by means of COMEX positioning data over time ) . the fact that outstanding gold derivatives have increased proves indeed nothing. it makes no sense whatsover to relate the size of gold derivatives trading to annual gold sales, as a speaker of Russia's CB has recently done. this is because the roughly 130,000 tons of gold produced thus far are all still in existence. the gold market is very different from other commodity markets in that respect. say for instance you're a wealthy oil sheik who owns 30 tons of gold bullion. now, the price of gold has increased from 250 to 410, so you have a profit to protect, but you don't want to sell your gold ( after all, it represents rainy day insurance ) . you may be tempted to e.g. buy puts, which means you forgo a little future profit potential for the sake of keeping your gains to date intact. that would clearly increase outstanding derivatives , but you'd hardly qualify for membership in a gold price suppression cabal.