Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

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

To: William JH who wrote (13092)	6/18/1998 4:05:00 AM
From: IngotWeTrust	Read Replies (2) \| Respond to of 116791

Wm JH sez:...how forward selling of gold by producers hurts POG? It would seem to me that if a producer sold forward contracts at $400, then when gold moved lower bought them back at $350, no gold changed hands and the deal is closed. Why wouldn't all the forward sellers close out their positions here and take a paper profit? The answer is in 2 parts, and each part has 2 parts(grin) A: there is a physical, CASH gold market. B: there is a futures market *based upon* the physical gold market A: there is a physical cash gold market: A-1) "If-I-have-Gold-on-hand-and-you-want-it, it-will-cost-you- $XYZ-RIGHT-NOW,You-have-30-sec.-to-make-up-your-mind, or-the-deal-is- off, take-it-or-leave-it" physical kind of cash gold market. A-2) "If I make it/grow it/find it/mfgr it, and you want it, we will draw up a cash contract right this minute at today's price this very second. Then on or before delivery date on this piece of paper I promise to deliver physical to you and you promise to pay on the spot." This is the cash forward contract in the physical cash gold market. B: There is a futures market based on physical gold market. B-1) In the scenario you paint, only gold users and gold finders/miners get to play and each one is the opposite side of the other person's contract, i.e., the miner sells at 400, and the user buys it at $400. If the price of gold drops to $350, the miner makes the $50 bucks, and the user loses $50 and hopes to make it up somewhere else in product mark up. If the opposite happens, then the mining company loses the $50, the user makes the $50 and s/he smiles all the way to the showcase display. This is the simplistic view of the futures market. B-2)The futures market attracts others, I will call them "onlookers/profiteers" They want in the game between buyers and sellers for a piece of the action as a gamble, putting up 1-3% of the total contract "pot" normally, just to be able to be dealt into the game between finders/miners and users. There are more of them that want to pay than either finders/miners out there, or users. That skews the game between the 2 major players. These "newbies" flip in and out according to whim/gout/or goat entrails examination. Makes no difference, they get their buzz by just getting to play. Most of them LOSE money. Your scenario does not apply to them, even tho' they are in the same game at the same time as the finders/miners and the users, and from a distance, out here in SI land, you can't tell who is who until someone confesses or "leaks the information" in the eternally fascinating game of Gold Gossip, or who has the Nugget Now? Furthermore, there are 3 more sets of players in the futures markets: B-3.2) Futures Options players B-3.3) OTC cash Options players using futures to offset their risks B-3.4) Off the floor flex options futures contracts and THEIR players in the totally unregulated OTC markets. Now... multiply this piling on, (if we were talking football, there'd be a whistle & a piling on foul called) provided by the futures markets and other sophisticated "pilers" I. by other nations II. in other time zones III.and THEIR in the same vareties as mentioned above players, and you can begin to see why all the pilers-on, who simultaneously short the GOLD market .....at the same time, .......reading the same goat entrails for their entry ...........................................and exit points/reasons, "their practice of forward selling hurts the Price of Gold." Hope this helps. Let me know, ok? It's late and I'm s'posta be doing something else so I may not be typing up exactly what I think I'm trying to say. O/49r