OT Gold drops to 20 year low after Bank of England sells 25 tons

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If that link does not work, you can find it at the Drudge Report.


-- Jerry B (skeptic76@erols.com), July 06, 1999


FWIW, I found the italicized part of the following paragraph of particular interest (no pun intended) (my itlaics):

Though central banks and investors once regarded gold as the asset of last resort that backed currencies and acted as a hedge against rising prices, low inflation in most developed economies and the creation of derivative instruments to protect against risk have diminished its role as a key asset.

Major banks are using interest rate swaps and currency swaps, as well as other derivatives, in a very big way. If these do function as substitutes for major uses of gold, the demand for gold, and thus its price, may be in for a large, and fairly long term, decline.


-- Jerry B (skeptic76@erols.com), July 06, 1999.

In case it was not clear, the last paragraph of my previous post was my comment, not a quote from the article. Sorry about that.


-- Jerry B (skeptic76@erols.com), July 06, 1999.

http://quote.bloomberg.com/fgcgi.cgi?ptitle=Top%20Financial% 20News&s1=blk&tp=ad_topright_topfin&T=markets_bfgcgi_content99.ht&s2=b lk&bt=blk&s=54cee6e6fb1a6fb261a33f22002504a3

-- Linkmesiter (link@librarian.edu), July 06, 1999.

Too bad - more Doomers lose money. I'm sure ol' Andy's not too happy...

-- Y2K Pro (2@641.com), July 06, 1999.

I remember about a year ago when the Dow was sitting around 9000 and gold was over $300.00 an ounce I was convinced gold was going up and the Dow was going down. For a short while the Dow did drop to 7400 and it looked even more convincing that I had been right.

Fortunately, my advise to sell....GET OUT of the market.....BUY GOLD....etc. were not heeded by those close to me. You might say the DGI's paid no attention to me and am I ever glad they ignored me.

The point is, the market is a strange animal.....it's a rich mans game. Anyone who says they know for sure what will happen is fooling himself and may cause a lot of people much harm, even though it is well intentioned.

The fact is, the DOW is up about 50% from its slump to 7400 last fall. I think it is likely there will be a correction however I have learned to keep it to myself........

-- Craig (craig@ccinet.ab.ca), July 06, 1999.


If these do function as substitutes for major uses of gold, the demand for gold, and thus its price, may be in for a large, and fairly long term, decline.

Maybe there's a fundamental reason Bob Prechter (Elliott Wave Theorist) has indicated that gold will probably fall well below $200 during the course of the bear market it's currently 'enjoying,' in addition to the technical reasons.

Interesting -- Bank of England bought bonds with the money. This is a highly deflationary move (or a move indicating BOE recognition of deflation in the world). They would appear to value the gold less than bonds. Since bond prices rise during periods of falling interest rates we can expect that they are anticipating such. Perhaps as a y2k fallout??

BTW, during the drop in gold prices from about $300 to about $250 the drop in the price of 1/10 ounce gold eagles is substantially less.....roughly from $35 to $31. This indicates large scale buying of gold coins.

-- de (delewisX@inetone.net), July 06, 1999.

I'd forgotten all about Bob Prechter. He was one of the notable market gurus for a short time in the mid '80s. Since the market crash in '87, he's had a long-term bottom forecast for the Dow at 400 -- yes, you read that right -- 400. Everyone laughed and continued laughing as the Dow started its merry rise back to 2000, to 3000, and up and up and up to over 11,200 at one point today.

If Y2K hits, and hits hard, who knows? Bob P. could finally be right!

-- Don (whytocay@hotmail.com), July 06, 1999.

Don, you might want to go back and review Bob Prechter's history a little more. around 1978 when inflation was roaring under Jimmy Carter, Bob predicted a massive Bull market ahead. he predicted 3600 on the Dow. for many years in the 80s he was the top guru.

He fell out of favor in the late 80s when he predicted a major fall in the Dow. In 1995 he published a book "At the Crest of the Tidal Wave" which called for a low in the Dow between 400 and 1000. At that time historical market indicators were reaching record territory which today they have far surpassed. He was 4 years early in 1978 and I believe he was 4 years early in 1995. In this book he called for massive deflation and a depression worse than the 1930s.


-- Ray (ray@totacc.com), July 06, 1999.

Ooops almost forgot, just came across this take on y2k, gold and the economy for what it's worth.

y2k, Gold and the Economy


-- Ray (ray@totacc.com), July 06, 1999.


Okay, I stand corrected. And in reviewing my previous post, I didn't mean for it to come off as smartassed as it sounded. I've been trying to post to that effect, but the server is busier than usual and I haven't been able to get in.

It will be interesting to see what happens in the market over the next 6-12 months.

-- Don (whytocay@hotmail.com), July 06, 1999.

Regarding the magnitudes of derivatives used by banks:

From the OCC (in this case the Office of Controller of the Currency, not the Options Clearing Corp)

All Commercial Banks, First Quarter 1999 Data Are Preliminary

Derivative Contracts by Product ($ Billions)*

Futures & Fwrds 10,358 Swaps 14,610 Options 7,503 Credit Derivatives 191 TOTAL 32,662

*in billions of dollars; notional amount of futures, total exchange traded options, total over the counter options, total forwards, and total swaps. Currently, the Call Report does not differentiate credit derivatives by product, which have therefore been added as a separate category.

Derivative Contracts by Type ($ Billions)*

Interest Rate 25,077 Foreign Exchange 6,654 Other Derivatives 740 Credit Derivatives 191 TOTAL 32,662

*in billions of dollars; notional amount of futures, total exchange traded options, total over the counter options, total forwards, and total swaps.

Just the facts, folks; interpretations regarding possible relationships between these data and demand for gold by banks is up for grabs.


-- Jerry B (skeptic76@erols.com), July 06, 1999.

I was one who fell for the 1995 stock market crash....never happened...but am still glad I was awake. We made some moves that have helped us alot getting ready for y2k. Sometimes you get ready for the wrong emergency...but you are still ready when the right one comes!

-- Moore Dinty moore (not@thistime.com), July 06, 1999.

Indeed, on the Gold Forum over at www.gold-eagle.com, there are a lot of folks with some tales of sorrow. One guy pretty much had his whole retirement funds on the gold line -- and lost.

My observation, based on gold-eagle and other sites, is that the majority of "goldbugs" (as they call themselves) are not really any more Y2K aware than the general population. They simply believe that gold (and silver) are due to shoot up (and that the stock market is due to shoot down), and want to come out big winners. And, many of them have sort of a "moral" stance, if you will, that simply believes that precious metals are the only real backbone for a monetary system, not paper. But, again, most appear not to be that big on Y2K, and in fact most appear to be into gold stocks, not physical possession of the stuff.

For me, I recently received an additional batch of American Eagles (via www.ajpm.com, nice people to do business with). I am not looking to make a "killing", just looking to survive Y2K. And if TSHTF, using gold and silver coins in a barter/meltdown scenario is certainly a possibility that should be planned for.

-- Jack (jsprat@eld.net), July 06, 1999.

My reading is that the central banks of the world are rigging the market to drive down the price of gold before Y2K starts becoming evident to the public. How else can you explain the Bank of England's public announcement of their major gold sales in May. If they wanted to get a higher price, they would have sold it very quietly in smaller quantities each time.

I suspect the insiders are secretly buying it up at these bargain basement prices. This is a fixed game.

-- Mr. Adequate (mr@adequate.com), July 06, 1999.

WRAPUP-Gold down after UK auctions, outlook bleak

11:10 a.m. Jul 07, 1999 Eastern

By Keiron Henderson

LONDON, July 7 (Reuters) - Gold and gold shares lost ground again on Wednesday, with the metal touching fresh 20 year lows, after the Bank of England's controversial debut auction to cut its gold reserves.

The metal fell to a day's low of $255.85 per ounce, well beneath Tuesday's auction price of $261.20, but clawed its way back to $257.55 by late afternoon.

Shares in gold companies around the world dropped on the British auction, reflecting fears expressed at the weekend by South Africa's President Thabo Mbeki that sales would pressure the gold price further and maul embattled mines.

Britain sold off 25 tonnes of gold on Tuesday, part of a plan to cut its gold reserves from 715 tonnes to 300 tonnes which has drawn sharp criticism from producers around the world.

In South Africa renewed bullion weakeness wiped nearly seven percent off the bourse's gold board on Wednesday and overshadowed the whole market. AngloGold (ANGJ.J), the world's biggest producer, was down 12.20 rand or 4.7 percent, to 247.80 rand by 1410 GMT.

AngloGold has hit out at the gold sales as naive, causing a slump in assets Britain was bringing to market, and urged Britain to reconsider its programme.

The day after Britain's 800,000 troy ounce sale, the first in a series planned to increase foreign currency holdings in UK reserves, dealers and analysts were almost all negative. They said no one had stepped in with substantial bids after gold's $4 an ounce fall on Tuesday.

``It really was bad yesterday, a very poor showing by the market in reaction to what was not a substantial offer of gold,'' one London dealer said of the auction.

Most in the market see more declines in the gold price as tonnes more gold is lined up for sale by Britain, Switzerland and the International Monetary Fund.

``The world and his wife is looking for it (gold) to go lower,'' said a London-based technical analyst.

``Short-term I don't think there's anything on the technical side that's very significant...to be honest (people) will tend to look at psychological round numbers -- $255 and then $250 rather than at technical analysis,'' he added.

Gold has slumped from $291 an ounce at the beginning of the year, losing around $35 or more than 10 percent since the early May Bank of England gold sale plan announcement.

Switzerland intends to sell 1,300 tonnes of excess gold reserves and transfer the funds raised to a foundation dedicated to helping victims of poverty, human rights abuses and catastrophes.

The IMF is proposing to sell 10 million ounces of gold from its huge reserves to help relieve developing country debt.

Producers around the world fear selling gold will do more harm than good to national economies, ravaging the integrity of a centuries-old way of storing value and threatening jobs and hard currency earning capacities in developing nations.

Overnight the World Gold Council called the sale, at $261.20 an ounce, a disaster for the bullion market and said the $210 million raised for investment in dollars, euros and yen was a poor a poor deal for Britain.

``At this price the people of Britain are being short-changed ...,'' WGC chief executive Haruko Fukuda said in a statement.

``Any interest earned over the next two years will be dwarfed by the scale of the losses already incurred on the value of gold in the reserves. It will take 3.5 years at current dollar bond rates of five percent to recoup this loss,'' she added.

((London newsroom +44 171 542 8065, fax +44 171 542 8077. london.commodities.desk+reuters.com))

Copyright 1999 Reuters Limited. All rights reserved.

-- when (f@2.q), July 24, 1999.


Can you find a more broken out list on derivatives??? there WAS a list as of Q3 1998 around somewhere and I managed to lose that one too.


-- Chuck, a night driver (rienzoo@en.com), August 24, 1999.

A usually reliable source once told me that most gold companies have a production cost of about $280. If this is true, gold stocks should plummet until gold prices turn around... What's that trick, buy low, sell high? Maybe in a few months if there are any gold mining companies left, that would be an excellent investment.

-- Tricia the Canuck (tricia_canuck@hotmail.com), August 24, 1999.


pretty much true, we all know "gold" is woth more than $258... that is the "fixed" price today, read all my posts and you will be edumacated!

Just lost a shit load more of "money" today, watching, waiting........ :)

Best of luck!


-- Andy (2000EOD@prodigy.net), August 24, 1999.


OCC Qrtly Derivatives Reports

The first qtr 99 is still the latest there.


-- Jerry B (skeptic76@erols.com), August 24, 1999.

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