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Gold/Mining/Energy : GOLD-XAU -- Ignore unavailable to you. Want to Upgrade?

To: paul ross who wrote (1348)	3/4/1998 10:19:00 AM
From: Enigma	Read Replies (2) \| Respond to of 1756

Asian 'dishoarding' (con't) Not all of Asia surely. The situation is S.Korea is interesting. Where is the Korean gold actually going? Is it from weak hands to strong(er) hands i.e. other central banks. These people are being paid for their gold 6 weeks after turning in in - in local currency. Let us hope that their local currency hasn't tanked even further. Is this a case of good money driving out bad. Whatt are the parrallels between this and America in the 1930s when citizens were forced to turn in their gold (at $32/oz I think - later fixed till 1971 @$35/oz) The gold went to the central bank, and it became illegal and also UNPATRIOTIC for individuals to hold hold. Faith in paper was the driving force. You could only hold gold through ownership of gold shares - which soared. Of course this leads to the classic argument for diversification of investment. It might seem a good idea to own (only?) gold - but what happens if there is a crisis of such magnitude, such a loss of faith in currency that the government declares it treasonably to own real money, i.e gold, and anyone doing so is branded a traitor liable to be hanged from the nearest tree? I'm stretching a point, I know, but it was an argument put to me by Russ Morrison once. And it is a compelling one Ironically, because it suits them, the Euro bankers will want some gold in their reserves because they want to ensure confidence in their new paper. And so it goes on....

To: paul ross who wrote (1348)	3/4/1998 12:40:00 PM
From: Ahda	Respond to of 1756

Thank you very much for this post Paul looking forward to continued.

To: paul ross who wrote (1348)	3/5/1998 2:37:00 AM
From: paul ross	Read Replies (1) \| Respond to of 1756

(Continued) VENEROSO GOLD NEWSLETTER ADVERSE SHOCK #3- Producer Hedging Threats of EMU related official selling were widely advertised by the bullion dealers in 97. The data on producer hedging in 97 is now coming in. It is possible that the Australian producers increased their hedge position by more than 400 tonnes in 97. The leading survey of No. Amer. hedge positions indicates a rise in the No. Amer. hedge position of close to 150 tonnes in the first 3 Qs of 97. We understand the No. Amer. producers probably added to their hedge position in Q4 97. More importantly, we understand that the African producers added to their hedges in 97 overall. It is possible that producer hedging increased by 700 tonnes in 97. OUTLOOK - 700 tonnes of hedging in 97 would be a record. Will it happen in 98? The bear market of 97 has convinced most producers of the merits of hedging. The Australians have hedged 4 years of production. The rest of the world's producers have hedged less than 1 year on average. It is easy to see these other producers would eventually try to hedge 2 years of production, but the odds are that they would not try to do this in 1 or even 2 years. We expect considerable net new hedging in 98. However, the historical record suggests it will not equal 97's record level. ADVERSE SHOCK #4 - Speculator Short Sales We argued throughout the first 8 months of 97 that fund short selling was depressing the gold price. Gold Fields Mineral Services, Ltd. (GFMS) has estimated that the combination of Western investor dishoarding of physical bullion plus speculator short sales came to 250 tonnes last year. We believe that net speculator short selling greatly exceeded that total by Sept. These speculator short sales comprise both derivative sales by funds as well as gold borrowings by bullion banks and others to finance non-gold positions. As an example of the latter, their is evidence that Korean banks borrowed gold to finance non-gold positions. These latter positions have been building throughout the 90's. We would not be surprised if speculator short positions of these types increased by more than 500 tonnes through early Sept. of 97 and were the dominant selling pressure on the gold market of 97. However, there was a dramatic reduction in these speculative shorts on the rally in Sept./Oct. 97. We believe that most but not all of these short positions were put on again by year end in 97. In effect, there was something of a reduction in the short position in the 4th Q when net official sales persisted, Asian end use demands declined, and Asian dishoarding and producer hedging possibly intensified. We believe that there has been a further reduction in the net speculative short position so far in 98. On balance we estimate that the net increase in speculative shorts in 97 may have been on the order of 400 tonnes. If producer hedging was almost 700 tonnes and net official sales were 500 tonnes - both of which seem plausible to us - there simply is no room for more than 400 tonnes of net speculative short selling (including gold carry trades) in 97. OUTLOOK - Speculative short selling in 97 was encouraged by dealer indications of EMU related official sector sales. Some dealers are indicating that these might abate in 98. Peter Munk and Julian Baring have suggested the same on their return from Davos. Such reports should lead speculators to consider reducing their short positions. We believe this has already begun to happen in Jan. and Feb. of this year. When the gold price rallies on a sustained basis in 98, the trend following computer funds will go from short to long. Hedge funds and proprietary traders will cover their shorts. The gold carry trade might be reduced. If official selling and Asian dishoarding abate in 98 and lead to a gold price rally, the net speculator short selling in 97 will be replaced by net speculator buying. CONCLUSION - The gold market is basing amidst intense Asian dishoarding and possibly some official selling on rallies above $300. Both of these should abate in the first half of 98. A reversal of net speculator flows will augment any rally. The producer sector will probably not provide more resistance in such an environment than it did in 97. The greatest price resistance will come from short run and largely transitory abatements in physical demand that accompany all gold price rallies. Scale up delta hedging of CB options will also provide transitory price resistance. (These effects are discussed in detail in chapter 4 of our forthcoming Gold Book Annual). So may official sales by non European CBs who have been convinced by last year's torrent of bearish commentary on gold that they too should sell some or all of their gold. On balance, with an abatement of Asian investor and commercial dishoarding, the gold price should retrace its decline of 96-97, possibly over a time frame of similar duration. <<<<<<<<<<<<<<<<<<<<>>>>>>>>>>>>>>>>>>>>>>>>>>>>>