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Gold/Mining/Energy : Gold & Gold Stock Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (12159)	2/23/2008 9:08:56 PM
From: The Vet	Read Replies (1) \| Respond to of 29622

Tommaso, your statement "But the short positions do have to be closed or at least covered sooner or later" is the common perception but it simply isn't true. If you followed my scenario you can see that simply having the short positions open creates a deficiency in the coverage of gold in the ETF vault and the number of longs shares held. Right now there are around 8 million shares of GLD sold short and not a single once of gold backs those shares. Unfortunately none of the holders of those shares knows that their shares are not backed, and in fact every holder of long shares thinks his holding is backed in full with gold. If, at any time that fact become obvious and the Authorised participants stopped buying GLD stocks and redeeming them for gold the market for the remaining GLD shares would drop to zero. At that point the shorts could cover for peanuts! Sure they covered their shorts but their presence collapsed the market. You are sure to say "That can't happen.." just think it through and tell us all exactly what would prevent it...