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Politics : Dutch Central Bank Sale Announcement Imminent? -- Ignore unavailable to you. Want to Upgrade?

To: Bill Murphy who wrote (4232)	3/14/1999 6:58:00 AM
From: ForYourEyesOnly	Read Replies (1) \| Respond to of 81904

This one reaaaly reeeks: Why lower margins for short option writing????? "Let's Make A Deal This is the gist of a press release from NYMEX (New York Mercantile Exchange) which was put out on March 11. Short Option Minimum Margins Lowered On Gold, Silver and Copper NEW YORK, N.Y., March 11, 1999 - The New York Mercantile Exchange will decrease the minimum margins for sellers of options on gold, silver, and copper options as of the close of business tomorrow to $10 from $20 for gold; to $10 from $31 for silver; and to $10 from $25 for copper. Confusing, isn't it. Does that mean that only those offering put (short) options get these generous new margin requirements, or does it mean that everyone writing puts or calls (longs) gets them. Well, there are some things we know for sure. It will now be cheaper to make a market in Gold options (the silver and copper is window dressing). In the lead up to these new margin requirements, the commercial net long position on Gold has entirely vanished. Please note also that these new arrangements were introduced "after the close of trading tomorrow" - that is - after the close of trading on Friday, March 12. It just so happens that Friday, March 12 is options expiry day on the New York market. That means that just as these new margin requirements come in, writers of options have a whole new series of same to come to grips with. With the new lower margin requirements, they are going to be able to write twice as many Gold options for the same outlay. This is known as leverage. We will be covering this issue in more detail in the latest issue of The Privateer - out tomorrow. The interesting thing here is the fact that the people who control the U.S. paper Gold market have decided that traders need more leverage when dealing with Gold. As we have said in this commentary for three weeks now: "The pressure under the Gold price is steadily building". The admittedly small price rise this week is one symptom of this. The decision to halve margin requirements on trading paper Gold is another one. Government's and Central Banks have been at war with Gold ever since the start of the "London Gold Pool" in 1962. There is absolutely no reason why they should declare a "peace" now. " --------------------------------------------------------------------------------

To: Bill Murphy who wrote (4232)	3/14/1999 4:29:00 PM
From: dospesos	Read Replies (1) \| Respond to of 81904

Bill: I do not think the CFTC COT numbers for Comex gold are all that outrageous. Nor that bearish. You know that the commercials went from net +76,329 on 1 Sept 98 to -41,928 on 6 Oct 98, a swing of 118,267 in that fall rally. The hedge funds/large specs and the public were getting net long then as they are now. So net net the commercials are selling to the funds/large specs and ma and pa. But what's going on amongst the commercials? We have market makers, banks, producers, fabricators, and probably some gold mutual funds who are true hedgers. As the cash price goes up we have market makers selling cash and hedging long via OTC options or at Comex. We have producers hedging short (OTC/Comex) on future production. We have fabricators hedging long on future need. And we have institutional trading desks who may only trade OTC options or futures who try to catch the swings and will be long on the rise and short on the decline. So what does a swing from net long to short at Comex mean in this context? It is some combination of Comex versus OTC options preference overall (they ARE competing), plus some marginal reluctance of cash market makers to sell into the rise, plus producer nervousness that the rise won't continue (especially when they are in precarious financial position),plus fabricators with a full load in inventory. I seriously doubt that the trading desks jump in short until they see some of this already happening. My guess--we are all guessing unless we are insiders--is that the market makers are a little afraid of getting creamed and may have pulled in their horns and are thus not hedging short as much. This could end up being quite bullish if they aggressively buy the decline s they did from October to December, especially if the low of the decline stays well above August lows. Tom PS: I realize full well that there is some overlap amongst the sub-categories of commercials in such an unregulated market. I am separating them here only for purposes of analysis.