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

To: goldsnow who wrote (21021)	10/7/1998 9:37:00 PM
From: Terry Rose	Read Replies (1) \| Respond to of 116791

goldsnow, "Everything changed after the G-7 meeting". Makes one wonder what was really discussed in the latest summit. U.S. dollar is heading south at any rate. The explosive move in the yen vs. dollar was extraordinary. Those leveraged hedge funds on the wrong end of the yen-dollar carry trade are now on life support. It will be interesting to see the body count over the next few days. This move is a preview of the liquidation of the gold-dollar trade. More fireworks to come. Terry,

To: goldsnow who wrote (21021)	10/8/1998 7:28:00 AM
From: Alex	Read Replies (1) \| Respond to of 116791

LTCM'S GOLD PLAY: THE LONG AND THE SHORT OF IT By JOHN DIZARD ------------------------------------------------------------------------ WHEN the Long-Term Capital Management bailout became public last month, there were stories circulating in the market about a gigantic short position it had set up in gold. In other words, LTCM had borrowed a lot of gold in the hope of buying it back later, ideally at a lower price. Gold people believed that as this short position, which they believed amounted to hundreds of metric tons of gold, was covered by purchases, it would add fuel to the runup in the gold price. I decided to check this story with LTCMs p.r. firm and one of its people dutifully reported back that Long-Term had no gold position, long or short, and that the rumor had been started in an attempt to hike the gold price. So I dropped it. Now, based on extensive reporting among gold market participants, I have come to the conclusion that Long-Term did not tell the truth. I wouldn't have minded if they had said no comment, but outright lying is something else again. So my advice is not to take these people's word in the future. A Long-Term spokesman reiterated his previous statements on the fund's gold position - or rather lack thereof. According to my sources, by August Long-Term had borrowed about three hundred tons of gold. That's a lot, about $3 billion. After borrowing the gold they sold it in the market and used the proceeds to finance other positions, such as one in the Australian dollar. Why do this? If they wanted to borrow, why not go to one of those overaccommodating creditors and plain borrow dollars to invest in securitized Antarctic commercial mortgage forwards or whatever other weird stuff they believed in that week? Because the rates on borrowing gold have been incredibly low - around 0.63 percent (annualized) if you borrowed it yesterday for a month or 1.61 percent (annualized) if you borrowed for six months. Usually, one-month loans are taken out by speculators, and six-month or longer loans are taken out by gold mines who are going short gold in this manner so as to balance out a long position that they have from their mine production. The problem, of course, is what happens when the gold price goes up? Gold has been in a bear market for 18 years, but theoretically, some day, maybe now, the price in dollars will start to turn up in a bull market. Mines don't have much of a problem, because they can cover their short selling out of what they produce. But a hedge fund has to buy back gold, and do so from a market that could turn jumpy very fast. Now apparently LTCM bought out-of-the-money calls to hedge their short position, which means that if the gold price went up a lot, then they had the right to limit their losses. But it didn't eliminate all their risk. I understand that J. Aron, the gold trading arm of Goldman, Sachs, has been able to cover all or most of the LTCM short in private transactions, with the intention of limiting the effect on the already stronger gold market. So the Long-Term gold episode may be drawing to a close. What market participants have begun to learn, though, is that the real danger to the system doesn't come from the relative value hedge funds themselves, which are in truth a very very small part of the financial system, but the banks and brokers who have been playing hedge fund on a much bigger scale. That's why the prices of companies such as Bankers Trust, J.P. Morgan, Merrill and Lehman have been marked down so far. How many of them have been doing what is known as the gold carry trade? nypostonline.com