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

To: Alex who wrote (33564)	5/10/1999 7:56:00 AM
From: long-gone	Respond to of 116779

The Kiki Table Discussion du Jour: Potpourri Lies, More Lies and Plain Old B.S. (Is the LBMA in trouble?) Professor von Braun The Rocket School of Economics May 10th, 1999 We have made mention before of the discrepancy between the supply and demand numbers for gold published by Goldfields Mineral Services (GFMS) and the published turnover on the London Bullion and Metals exchange (LBMA). This “difference” is huge. Even though this turnover dropped to 27 million ounces per day according to recent announcements, this number still amounts to 900 tonnes per day. The entire worlds known above ground gold reserves are traded two and one half times per year (????) Yet the supply /demand numbers are estimated at 4000 tonnes on the demand side and 2600 tonnes on the supply side per annum. The LBMA numbers include paper contracts and the percentage of what is what (paper vs physical) re the daily turnover has never been revealed. The daily turnover on the New York Comex is minute when compared to the LBMA. It has been known for some time that there exists an unknown large short position in the gold market that has resulted from the sale of leased gold into the market (with the intention of buying it back at a lower price) and these sales have certainly made up the estimated 40% shortfall on the supply side. The continual noises coming out of the Bank of England about large potential sales have been going on for some time. Gordon Brown, the Chancellor of the Exchequer, (a very high faluting name) has been bleating for some time. Pre Euro days he was insistent that the ECB would be a seller (didn't happen), then it was the Swiss sale (has not happened yet), then it was the IMF sale (still has not happened), and now it is the Bank of England itself. So what gives here? What are these people actually up to ? If ALL Central Banks sold all the gold reserves they had over a period of fifteen years (1600 x 15 = 24,000) there would still be a shortfall re the supply/demand situation. In other words in fifteen years time gold would still be in short supply re the demand side of the equation. Fifteen years is not a long period of time in the over all scheme of things. Gold as a currency and symbol of wealth has been around for several thousand years and as much as Gordon Brown may prefer otherwise, this is not about to change. What the dear old Chancellor may not be telling us is that gold can not simply be produced out of thin air as can paper currencies. All these bleatings are telling us that something is not right here. What could it be ? Regardless of the rhetoric there is no real reason to demolish the gold market. A falling gold price is not reflective of the true market supply and demand situation. The members of the LBMA are of course bullion banks, many of whom are directly connected to the old traditional banking houses of Europe and the U.K. Not much goes on in Europe that these people don't know about. The same connections go directly to the Bank of England and the Federal Reserve and the same players names appear as part owners of both of these institutions. In a sense dear old Gordon is a proxy for the LBMA members and any statements coming from him, or his office, should be regarded with suspicion at the very least. The wisdom of pre- announcing a sale of anything into a rising market is not exactly a prudent strategy. Its a bit like Ford announcing a discount on current models because they believe next years cars will be cheaper still. The buyers will wait. Surely the Bank of England has a fiduciary duty to it's shareholders (bullion banks) to obtain the maximum benefit from the sale of any of it's reserves. Unless of course dear old Gordon knows something that we don't. What is known at present is that there is a shortage of physical metal in the market place, as demonstrated by the supply demand numbers issued by GFMS and seconded by the World Gold Council. What is not known is the reality of the magnitude of the published numbers re the turnover on the LBMA. (How is it possible to trade the entire known gold reserves 2 1/2 times per year when at least 40% of that amount is in vaults somewhere?). This number becomes even more absurd if one looks at the estimates of the amount of actual physical metal available to be traded. How much of this turnover is physical metal and how much is paper contracts ? This is the question. If there was a potential problem, then the members of the LBMA would be the first to be aware of it and being based in London, would have to advise the B of E at some stage. London's big problem is its decline as the financial center of Europe, an event currently unfolding as the ECB begins to exert is new found power and financial transactions are moved to European cities. The only problem the LBMA and its members could be facing would be one of delivery of physical metal. There simply is not a lot of gold out there available for immediate delivery. The rush to embrace all forms of derivative contracts and trade these “things” willy nilly as they say, has led to one near collapse of recent times and I am referring to the Long Term Capital (LTCM) debacle. But messing with paper contracts that are dependent upon delivery of a physical commodity is a different ball game. Instructing lenders to deliver a capital injection to LTCM is different from instructing members to deliver physical metal to the metals market. Not so easy to do, old chap. While most look at these announcements of potential official sector sales (the ones that don't materialize), as further evidence of gold's now redundant role, perhaps it may be a desperate attempt to induce the appearance of actual physical metal into a market that may be in deep smellies. We all know that politicians and central bankers have several things in common and the inability to recognize reality is one of them. The belief in their own ability to manipulate reality is another, as is underestimating their opponents intelligence. One would sincerely hope that the Chancellor of the Exchequer is not involved in advising NATO as to what actually is a legitimate target. It seems that the same sort of arrogance which results from a false belief in ones ability to lie ones way out of a screw up appears common to both. As does the refusal to acknowledge the original mistake. Mistaking the Chinese Embassy for some legitimate Yugoslavian military target may be symptomatic of an ability to get it wrong in other areas as well. It was a mistake, albeit a serious one, of “officialdom”, the same “officialdom” that seems determined to mess with the gold market. These recent gurgles and hollow bleatings by the good Chancellor may be a clear signal that it is time to go long the physical gold market and be cautious on futures contracts that are dependent upon delivery sometime in the future. Professor von Braun may be contacted by email at profvonb@aol.com lemetropolecafe.com