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To: Real Man who wrote (394629)	9/19/2009 3:46:25 PM
From: NucTrader	1 Recommendation Respond to of 436258

With the announcement of the 400 tonne IMF gold sale, here's what MAY be going on? Sub ABX for the miner, China/BRIC for "somebody down stream". It's known, for example, that recently the CBOT has started allowing shares of the GLD ETF to be subed for the physical commodity for settlement of gold futures contracts... by Mediocritas on Sat, 09/19/2009 - 09:31 #74353 It's a simple carry-trade. Bullion banks lease gold from central banks at a low interest rate and enter a short position by either leasing forward or on-selling (paper) and supposedly cover their liability / risk by buying long dated futures at a profitable strike. It must be attractive to add to that short position when the money is so easy to make, but pushed too far it can end very badly should a downstream player stand for physical delivery. Say, hypothetically, that a BB leases 400 tonnes of gold from a CB and enter into a long dated futures contract with a reliable gold miner. The BB then enters into a short position by selling paper written on that gold, secure in the knowledge that the position is covered by the miner's promise to extract metal in the future. Easy money! Now suppose that somebody downstream demands allocation / physical delivery, triggering an allocation cascade through the paper trail. The BB is then on the hook to deliver physical metal and must stand for delivery against the miner. Now suppose the miner sees this coming in advance, knows it hasn't mined enough to make delivery good, panics, and cashes out of its positions. This nets the BB a healthy paper profit, but still leaves the BB on the hook for physical delivery. If it runs to the market to find real metal, the gold price will rise to the point where the BBs paper profit can't cover the delivery demand, resulting in a net loss. Even worse, if risk models did not factor in a large delivery request and there is an excess of paper in the market, then there isn't enough physical metal in existence on the open market, resulting in a potentially infinite short-squeeze that ends only with the BB defaulting. A soaring gold price is bad news indeed for those who benefit from our faith in fiat currencies. Now suppose that the affected counterparty is a very large trader across many sectors and threatens default counterstrikes should delivery not be made. To prevent a nuclear chain reaction, a CB must come to the rescue and deliver physical metal from its stash to pacify the counterparty. The BB is now on the hook to make physical delivery to the CB to plug the hole, but with a much longer time frame to do it, relieving pressure on the gold market. Once things have calmed down and the price declines, the BB can acquire physical gold over time to make good the CB (aiming to do so at a profit), then the whole scheme can start over (assuming the downstream player eventually eases up).

To: Real Man who wrote (394629)	9/19/2009 3:47:23 PM
From: broadstbull	Respond to of 436258

Every time I see one of these expert clowns on TV or in an article..I sure wish it come along with disclaimer providing what their opinions were in 2007

To: Real Man who wrote (394629)	9/19/2009 6:27:56 PM
From: gregor_us	Read Replies (1) \| Respond to of 436258

So, to the surprise of many, the greatest massacre of those short and those who are underperforming on the sideliness is yet to come. Sure. Could happen. Fresh Jim: online.wsj.com G

To: Real Man who wrote (394629)	9/19/2009 8:37:05 PM
From: ayn rand	Read Replies (1) \| Respond to of 436258

if the economy grows by 7% and inflation grows by 10%, would that be good? luckily there is no inflation, and luckily the economy is under control. I was blue, just as blue as I could be Ev'ry day was a cloudy day for me Then good luck came a-knocking at my door Skies were gray but they're not gray anymore Blue skies Smiling at me Nothing but blue skies Do I see Bluebirds Singing a song Nothing but bluebirds All day long Never saw the sun shining so bright Never saw things going so right Noticing the days hurrying by When you're in love, my how they fly Blue days All of them gone Nothing but blue skies From now on I should care if the wind blows east or west I should fret if the worst looks like the best I should mind if they say it can't be true I should smile, that's exactly what I do