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

To: long-gone who wrote (21900)	10/17/1998 11:41:00 PM
From: waldo	Read Replies (1) \| Respond to of 116763

Friend of Another (10/17/98; 21:33:27MDT - Msg ID:632) THINKING! All: If we step back to review the gold market throughout this last year, it offers a surprising glimpse into an orderly process few thought possible. We have read many times how this market was in a supply and demand deficit and it was the Central Banks that were filling the void of un-supplied gold. Some reasoned that if it wasn't for this new supply the markets would have been much higher by now. No my friends, that just is not correct! Granted, there is much more gold being consumed than is being mined, but it wasn't the CB that were supplying most of it. Yes, last year (1997) all the CBs on average did actually sell off some 400 tonnes +/-, and that was NET sales, not leases. But the question remains, who supplied the other 700+/- tonnes that made up the total deficit? If the CB vaults lost only 400 then how could their lending action be identified as the source of the new supply?? The answer is, it didn't! But I have gone to far, let us back up. By far, the largest amount of gold lending / leasing is a paper product made possible through the LBMA. This group of Bullion Banks and brokers (perhaps the Bank of England also) trades some 30 +/- million ounces of gold a day. A day! Some of it may be physical and some of it paper, but all of it Very Liquid! With a ready Gold CURENCY market of this size, there is simply no problem raising paper currency capitol by shorting paper gold. If you have the correct backing. I am assuming the reader has read my posts #556 and #585 and much of the Thoughts! of Another. If an entity can produce some form of collateral along with a Central Banks agreement to back the gold loan with gold, then a Bullion Bank has little problem supplying cash by shorting paper gold. The CB does not have to move or sell his gold and receives 1% or 2% for a signature on the general agreement. The BB collects fees and any arbitrage that may result. The “entity” ( for poster Tyler Rose, that's the 3rd party) obtains little in the way of return on this investment except for one obvious point. That being, that they will receive the benefit of any net gains on the repayment of the gold loan, in physical gold, after the financing is paid. This works because all of the risk is upon the middleman, the Bullion Bank. Now considering that the BB hedges it's part of any gold risk (increase in price) in the derivatives market so that in the completion of the deal if gold rises in price this increase is, as stated above, delivered! As one might reason, the 3rd parties in these contracts (the buyers that are never reported by the media) are banking on but one thing, a huge increase in the dollar price of gold! In the event that the BBs are defaulted by current events or total market failure, it will then be the Central Banks (as ultimate signers of the General Agreement) that will deliver Real Gold from their vaults! Now, back to my original point: Much of the extra gold that has been supplied to the physical markets to cover the supply deficit has come from private holdings. Truly, gold doesn't come out of thin air and neither the CBs or the mines were offering enough of it to satisfy demand. Yes, as much as that flies into the face of accepted analysis, these private Western Holdings were being sold even as the total gold market, including CB holdings was being cornered by a market that, as Another said long ago “is not as before! Not all of these maneuverings are done by major 3rd parties. Lately, a good deal of it is done by traders and financial operators that are naturally attracted to action. These people will get cleaned out by defaults simply because they don't have anything to offer the world as a means to force delivery. I think it's called “no ace in the hole”. However, any financial power that has reserves that the economy needs will be supplied or paid in an acceptable currency if necessary. If we think long enough on this we can see that perhaps next year, much of the derivatives carry trade will be forced into default. In this meaning, default is having to pay, not in kind, but in Euros. But what will trigger this major break in the action, so as to start the ball rolling? It has already happened. When Asia started to fall many, many months ago, that was the signal that the first domino was falling. With the Euro expected to arrive in1999, it was time to break the Asian gold buying (this does not include China as they will be part of Euroland) and at the same time begin a long term breakdown of the dollar. A destruction that would carry on for several years. Most of those years have passed. What of tomorrow? The gold loans will now become harder to repay as the money that the loans created is destroyed. The Central Banks, that largely stopped backing new loans earlier this year, have now completely stopped for fear of having to deliver their gold before the Euro is available. This time period for them has been one of also having no ace in the hole. From now till the end of the year, they will begin calling in loans (pulling their signatures) that are now seen as unnecessary. As England is not part of the eleven EMU nations, look for the LBMA to be seen as carrying heavy risk from default. If the derivatives markets fail, they will lose what risk hedges they have. This risk should begin showing itself in the dollar price of gold anytime. With China buying to rid themselves of dollars preEuro and the Swiss now buying to cover a huge mistake, the market should be bumping up to $350/$360 by year end! Remember, the Swiss are also a nonEMU country! thanks FOA