If your into the futures , you need to keep an eye on foreign central banks and their currencys .They have a way of blindsiding you when you least expect it.At the beginning of this year the short position on gold was huge.If called for delivery on expiration,it would take two years of gold production to settle the contracts.Production has been decreasing anually and there are few new projects because exploration was not in the budget.JPMorgan holds a staggering 80% of all shorts on gold.No wonder the stocks tanked this year.Gold value can be manipulated to a certain extent .Ibelieve JPM and ABX are being sued buy a precious metals fund for price fixing.I like the futures but I want to keep my stress level managable.
Any good thoughts on gold?
- Thread starter TheStudent
- Start date
www.cme.com
Gold TRAKRS
Gold TRAKRSSM are non-traditional futures contracts designed to provide customers with an effective way to gain exposure to the spot price of gold. Gold TRAKRS are intended to track the Gold TRAKRS Index, a total return index created by Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). The Gold TRAKRS Index is designed to track the spot price of gold and is calculated on a total return basis.
Gold TRAKRS are scheduled for regular trading on December 4, 2003.
guess the CME is trying to compete with the NYMEX / COMEX
and CBOT ?
Gold TRAKRS
Gold TRAKRSSM are non-traditional futures contracts designed to provide customers with an effective way to gain exposure to the spot price of gold. Gold TRAKRS are intended to track the Gold TRAKRS Index, a total return index created by Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). The Gold TRAKRS Index is designed to track the spot price of gold and is calculated on a total return basis.
Gold TRAKRS are scheduled for regular trading on December 4, 2003.
guess the CME is trying to compete with the NYMEX / COMEX
and CBOT ?
Thanks, I did read about the JP Morgan short position as well. Might I ask which sites you find the most useful for gold information?
What have you seen in terms of CB action on gold? Manipulation of foreign currencies by foreign CBs is well known, but I am not as familiar with the framework for why CBs manipulate the price of gold.
Sorry I'm not more help with the futures . The 2 sites I visit most often are kitco.com and the goldsheet mining directory.com.The only recent news was the meeting to discuss the current agreement and its extention of cb's not to sell their remaining gold until a specified date inthe future.Although ,cb's are much more reluctant to even consider selling their gold.This agreement was put in place amongst the G8 during the bubble's peak, when gold was bottoming out at $250, when cb gold sales artificially destablized the the price of gold. The cb;s are not currently engaged in gold manipulation, at least not directly.Propping the dollar up every time it needs it ,has had a direct effect on gold price for years,until recently that is.During the cb gold sales of a several years ago,who was the biggest buyer? that would be the US,and yet our currency is backed by less than 1% gold.The euro is backed about 13%.
You don't say
Anyway, I was doing some homework over the weekend - info.goldavenue.com seems to be a very informative site
I think I "get" the CB gold leasing now - it seems identical to the stock loan business.
1) Long term holders (CBs) lease gold to earn a carry yield
2) The demand for borrowable gold comes from banks like JP who provide hedging solutions for producers
3) Producers want to hedge in a falling price environment
The irony of the situation is unlike the stock loan business, the volume of gold short sales to facilitate hedges is probably a very significant proportion of gold liquidity. In the stock world, all the hedge related short sales in the market don't add up to much of a price impact because the "normal" trades are so much larger in liquidity.
So, CBs and producers appear to have been caught in a classic price spiral trap. CBs lend gold to earn a yield on an otherwise non-yielding instrument. Producers are sold on hedging strategies by banks and start to lock in prices not only on near term production but future production.
When you start selling forward 3-4 years worth of future production in the spot market, the banks are going to be shorting a significant proportion of the daily liquidity. This causes prices to go down, which causes producers to panic and lay on heavier and heavier hedge programs. Which in turn results in greater price pressure downwards.
Ordinarily, the circuit breaker in such a vicious cycle is the stock of borrowable inventory. But since a great deal of gold is hoarded rather than consumed (wheat gets eaten, copper goes into cables etc), you have multiple years worth of gold production sitting in inventory to facilitate forward sale programs.
I think the producers were caught in a classic prisoners dilemma trap and could not dig themselvers out of it (hedge or not hedge?). In a falling price market, you would expect producers to cut production relative to demand, which is exactly what happened with gold producers and certainly explains the growing gold output gap between production and demand.
Central banks woke up to this vicious cycle after the Bank of England's announcement to sell gold in Oct 1999 crushed the price of gold. So, they banded together to limit gold leasing and gold sales in Dec 1999, in behaviour reminiscent of other production limiting cartels.
It seems clear that CBs now want to talk up the price of gold because they have wisened up and want to get a good price for their sales. They are clearly still dishoarding down to the minimum level of gold required to perform a disaster insurance policy function described by the Banque de France. There seems to be no official interest in restoring gold to a monetary function (despite interesting precedence - Mexico, India and Brazil have in the past 10 years settled international obligations with gold).
Long, long term, the value of gold is largely derived from its perceived value as a money substitute. It remains to be seen if it can sustain that without the support of the central banking instutitions.