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

To: goldsnow who wrote (14496)	7/14/1998 6:59:00 PM
From: Real Man	Respond to of 116770

I'm asking because it would be more logical to be long both gold and Russia (commodity-producing country with market cap below 10% of GDP - the lowest I've seen nowadays). I would expect if commodities started to rise now, US market would crash, but maybe Wall Street will find another excuse to keep the prices inflated. -Vi

To: goldsnow who wrote (14496)	7/15/1998 3:57:00 PM
From: Alex	Respond to of 116770

Russian banks skate on thin ice MOSCOW: The Russian economy is within a hair's breadth of crumbling, but the Central Bank has delayed devaluation of the rouble to avoid an Asian-style banking crash. RUSSIA'S Central Bank is fighting a rearguard action to delay a rouble devaluation until the autumn in a desperate bid to avoid an Asian-style banking collapse which could take the entire Russian economy with it. The financial sector, which expanded rapidly in the reform heydays of the early 1990s, lives with a multi-billion dollar futures market dangling above its head like the sword of Damocles. The rouble rate, the modern day equivalent of the horse's hair which is preventing the sword from ending the bankers' party, has come under mounting pressure and forced the bank into an all-out defence of the Russian currency. "The Central Bank has said that a 20% devaluation would make the banking sector as a whole technically insolvent," said Al Breach, economist at the Russian-European Centre for Economic Policy here. However, the 40% devaluation that market analysts predict would have the effect of a nuclear bomb on financial markets here, and could provoke an Indonesia-style economic meltdown, said Breach. Russian banks are holding an estimated eight to nine billion dollars worth of dollar futures, financial instruments used to hedge against changes in the dollar-rouble rate, say analysts. But the storms which blew in from emerging Asian markets have turned profitable deals cut last autumn into high-risk investments, and raised the spectre of a default by a major player, banking experts say. That, they agree, would send shock waves around the entire financial system and bring Russia's troubled economy crashing about the government's ears. The problem lies in the huge nominal value of the deals. Most are "non-deliverable", which means the parties only transfer the difference between the rate agreed in the forward deal and the current market rate. But if one side fails to pay, that could set off a chain reaction which could reverberate around the financial sector, as bankers caught short started calling in deals or defaulting on a range of payments as they chased dollars. "It quickly gets out of hand," one banker said. Losses in the event of 40% devaluation could reach as much as $600 million or more, economists say, more than a quarter of the banking sector's capital, estimated at $2bn. "What the central bank is trying to do is last until September, until all of these forwards have matured," said one banking insider. "And it is calculating which banks can sustain those losses. "As soon as the losses become bearable, then the rouble is going to devalue, because it's economically advisable to do so. "The Central Bank is defending the rouble against the dollar because of the banking sector. If it allows it to go, the banking sector will go." The bank was instrumental in setting up the dollar forward market last year, intending originally to gradually pull out and let commercial banks take on the risk. But whereas in a normal futures market the risks are balanced, the way the Russian market developed left domestic banks holding the dollar forwards' baby, and open to the risk of ruin should the rouble rate change dramatically. "What you are talking about is the banking sector collapsing," said Breach. "That's exactly why the government has spent all its time trying to defend the rouble, and rightly so." Bank watchers say most of the large Russian banks have already restructured their portfolios in the wake of the Asian crisis, with August the last month when a major block of dollar forwards comes due. "In September, October, the big banks have already restructured their loans, so if there's a devaluation, one or two banks would go, but I doubt if it would be dramatic for the system," the banking expert said. Whether the Central Bank can survive until then is the crunch question, and underscores the importance of an IMF-led bailout which could secure Russia up to $20bn and inject much-needed confidence into its volatile financial markets. Russia announced on Sunday it had secured such a loan, but gave no indication of the amount. Observers said the statement was aimed at dissuading foreign investors, ahead of the opening of the Russian markets on Monday, from further reducing their operations in the country. "It's very close to call, but I don't think foreign markets have sufficient claims on the Russian system to bring it to a crash," said one expert. Sapa-AFP All Material c copyright Independent Newspapers 1998. inc.co.za