Published on Gold Anti-Trust Action Committee (http://www.gata.org)

From Gold Shorts to Derivatives: How it is Done

By cpowell
Created 1999-01-30 08:00


European Central Bank board member, Sirkka Hamalainen said on Saturday:
"Gold's importance for central banks will likely fade in the long run,
but they must not rile jittery gold markets by unloading reserves." She
told a panel discussion at the World Economic Forum's annual meeting in
Davos that gold has played a vital role as a store of value over the
centuries that elevated it beyond being just another commodity.
But, she added: "In the long run it is very likely that its nature will
change. But it is to my mind in the very long run and it is very
important currently that we don't have any rapid disturbances there."

Vice-President, Al Gore, at the same forum, told delegates:- "I hope
this can be the year when international financial institutions are fully
able to do their part ( speaking about funding debt-relief to poor
countries ) including carrying through on a long-discussed proposal,
the mobilisation of a small portion of the IMF's gold reserves."

Bill Murphy's comments on this, as Midas at the James Joyce Table,
www.lemetropolecafe.com [1]. Here is an extract:
US officialdom and the New York financial institutions are desperately
trying to hold down the gold price Times may be a changing. Gold has
closed higher the past three days in a row Today's action was
particularly good as the gold market shrugged off bearish comments made
by Vice President, Al Gore. In our last Midas we said that even though
most observers were bearish on gold, we felt a very good pop was in the
works. Perhaps, that pop is happening The New York financial
institutions may be becoming desperate. Gold mine supply is 2529 tonnes
and gold demand is over 4100 demands. Where is the difference coming
from. They must continue to try and recruit gold loan borrowers-- "the
gold carry crowd "-- to add supply to the market place. They hope that
statements like Vice President Al Gore made will continue to embolden
the borrowers.



from a special guest at Le Metropole Cafe, Thobe Perram, a Scandanavian

There is nothing "wrong" with being short What is "wrong" is market
manipulation. If that's what the Fed and the CRMG are doing, it should
be exposed. Miners and their shareholders are being screwed.

The only possible justification would be to prevent total systemic
collapse. My guess, based on a few years in the industry, is that this
is not the case. I suspect, but have no evidence whatsoever, that the
borrowing from the Central Banks and uncovered short sales (against the
collapsed Russian assets or whatever they bought) are probably hedged by
out-of-the-money call options granted to the borrowers by the same banks
who lent. That is what we used to do.

This means, if the market does go up, that these options will be called
and the Central banks will find that they have sold gold that they did
not intend to. Whether they buy it back is a question that will be
determined by their governments, electors and tax payers. I guess that,
if the price goes high enough, they will not. And if they don't, the
price will not go that high.

In summary, I think that the whole thing may be just a huge and
unintended mobilisation of the world's central bank gold reserves. If
you do manage to flush out the shorts I doubt if the market will go much
above $450. If it gets there I'll buy you a drink!



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