Precious Metals

Gold

Technical Focus, by Citi, April 3, 2009: “A decline is underway with … a low either in the $850-$862 range (June contract) or … closer to $800 … no later than the last week of April, the first week of May. …

(Expect an) important turn (in) June. (Probably a low.)

OTC Gold Derivatives

The reported figure for gold options now exceeds 30,000 tonnes (more than the world’s total official gold reserves).

Citing low lease rates and growing concerns over counterparty risk, GFMS asserts: “Over the course of 2007 central banks continued to withdraw from the [gold] lending market.” GFMS, Official Sector Activity in Gold: Full Year 2007 (January 2008), p. 7.

But the data from the BIS on gold derivatives in 2007 begs the question: If the producers were continuing to dehedge (September 30, 2007, the global delta-adjusted gold producer hedge book had fallen to just over 1000 tonnes.) and the central banks were reducing their gold lending, what accounts for the rising tonnages of gold forwards and swaps? [Without government (fed) involvement, this would be impossible.]

This question suggests another: What is the Fed hiding by stonewalling on GATA’s requests under the Freedom of Information Act for “copies of all records in the possession or control of the Federal Reserve Board relating to, explaining, denying or otherwise mentioning ‘gold swaps’ involving the United States of America or any agent thereof, during the time period January 1, 1990, to December 7, 2007, the date of the request?” See GATA’s Letter of Appeal (May 5, 2008). …

In the middle of 2007, an enormous volume gold options were transferred to market participants outside BIS’s regular semi-annual reporting system and past numbers for gold options were revised downwards. …

The finger of suspicion with respect to the reporting snafu seems to point in the direction of one or more big U.S. investment banks, e.g., Goldman Sachs. …

Conclusion: Paper commodities are another bubble that has yet to burst. … there is a huge (and growing) disconnect between the amount of paper promises VS the underlying commodity.

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