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Gold/Mining/Energy : Gold Price Monitor -- Ignore unavailable to you. Want to Upgrade?

To: goldsnow who wrote (10624)	4/25/1998 2:19:00 PM
From: Alex	Respond to of 116790

More on BOE gold ................. Risk for banks in gold loans An article in "The Guardian" (a leading national British newspaper), by Dan Atkinson on Thursday April 23rd 1998: "Gold loans may leave Bank with bad debts", suggested that British gold reserves worth as much as 300 million British Pounds Sterling may be at risk at the Bank of England, according to "industry sources". Gold loans and deficits caused by short-sales are estimated at 8000 tonnes worldwide, according to analyst Frank Veneroso (see conference call transcript of Tuesday, Dec. 9 1997): mcomm.com On November 12th, 1997, he claimed that the world gold market's gap between supply and demand was 700 tonnes larger than estimated- so that demand for gold to cover short market positions will eventually send the price of gold soaring. Short sales of bullion basically involve gold being borrowed and sold by speculators, who believe that the price of gold is going to continue to fall, so that when they buy gold to replace the borrowed gold at a later date, with a little interest added, they can pocket the difference (original value - replacement cost - interest) as a profit. The Guardian article pointed out that this has been going on for more than 10 years, as if the price of gold would continue to fall for ever; but in the event of a shortage of gold for delivery, the gold that was orignally borrowed and sold wouldn't of course be easy to replace since it may well be hanging around overseas consumers' necks as jewellery. But now, with the price of gold having risen 12% since January, speculators could end up with a loss instead of the hoped-for profit when they buy the more expensive gold to cover their debts. The Guardian article noted that: "Were significant numbers unable to do so the resulting turmoil could threaten London's pivotal position in the international gold market." "The crunch could be exacerbated by the increasing tendency of all central banks to widen their list of approved borrowers, thus taking in organisations with lower credit ratings. An analyst warned yesterday that credit ratings were all very well during normal times but "gold should be there for an abnormal occasion"." The price of gold made a 19 year low of $279/oz on January 8th 1998. On April 22nd, gold was up to $312.75. The Guardian noted that their source had identified bullion banks as being at particular risk as "...they were in the position of borrowing short-term from the Bank to lend longer-term to speculators, jewellery manufacturers and others. It is not known what proportion of Britain's 573 tonnes of gold is on loan, but the international average is about 10% of reserves."