Russian central bank will buy gold ''on all markets'' -- foreign and domestic

Section:

Beijing Adds to Copper Volatility

By Kevin Morrison
Financial Times, London
Thursday, November 24, 2005

http://news.ft.com/cms/s/3d52f82c-5d12-11da-a749-0000779e2340.html

Benchmark copper prices rose more than $100 on Thursday to within
sight of the record highs reached last week.

The gains came on rumours that China's State Reserve Bureau still
holds a large net short position, despite efforts by the Chinese
authority to calm market nerves in the past week.

The benchmark three-month copper price rose by 2.7 percent to $4,205
a tonne on the London Metal Exchange, or less than $40 short of the
record high struck last Friday. The SRB has been auctioning copper,
and plans further auctions as part of a plan to cool prices by
demonstrating to the market that it has the metal.

Metal futures traders said Liu Qibing, the trader who worked on
behalf of the SRB and who is reported to have built up a net short
position of up to 200,000 tonnes of the red metal - which obliges
the SRB to deliver this amount of copper into registered warehouses
by a set date - may have exacerbated his losses through the options
market.

Although copper trading on the London Metal Exchange, the world's
largest metals market, has been the focus for the SRB activity,
traders said Mr Liu may have used options in the over the counter
market for building up the assumed SRB short position.

"There is talk that he (Mr Liu) was short copper, and tried to cover
his losses by writing options, which helped cover his losses on the
book as he was receiving income from issuing the options," said one
London trader.

Traders said Mr Liu would have received a premium up-front on the
options, but then made a loss when they were exercised as the
prevailing copper price was above the selling price on the option,
which in turn exacerbated the book losses in the futures market.

This tactic mirrors the strategy used by Nick Leeson, whose bets on
Japan's Nikkei 225 share average that brought down Barings Bank were
largely done through option trading.

However, information about options trading is limited as trading
volumes in the OTC market are not reported. Robin Bahr, base metals
analyst at UBS, said options volatility has increased to more than
30 per cent from an average of about 25 per cent last year.

Mr Bahr said the LME does not receive any formal information on the
OTC market and there is no mandatory requirement by the LME's member
firms to provide its options trading in the the metal markets.

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