Goldman Sachs loses big money in derivatives - is this what they call A CLUE???

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LONDON, Aug 19 (Reuters)

- U.S. investment bank Goldman Sachs has lost money after being caught out in the money derivatives market, the Financial Times reported on Thursday.

The FT report said the loss was incurred last month at Goldman's London swaps operation.

Goldman refused to comment but rumours of a $100 million loss have been dismissed as far too high, the report said.

It said the loss occurred as money market instability increased ahead of expected interest rate rises in the U.S. and Europe, and investors and banks became more risk averse in anticipation of computer millennium bug fears.

The report added Goldman's swaps operation in London remained comfortably profitable despite the setback.

Goldman could not be reached for comment on the report.

That Goldman cannot be reached is quite understandable, because the total loss is most probably substantially greater than $100 million.

-- Andy (2000EOD@prodigy.net), August 23, 1999

Answers

LONDON, -

U.S. investment bank Goldman Sachs on Thursday declined comment on a Financial Times report that it has lost money after being caught out in the derivatives market.

The FT report said the loss was incurred last month at Goldman's London swaps operation, but added that rumours of a $100 million loss had been dismissed as far too high.

Banking sources said a sharp spike in bond and money market spreads in the last weeks as investors move into liquid government bonds had caught many banks operating in the derivatives markets off guard and that some losses were common.

Driving the spreads are expected interest rate rises in the United States and Europe and investors and banks becoming more risk averse in anticipation of computer millennium bug fears.

But Goldman's losses were believed to be small and its swap operations remained comfortably profitable despite the setback.

The FT said Goldman had bet on a narrowing of the spread between the so-called Libor caps, which cap the cost of floating rate money at an agreed level, and swaptions, which give the holder the right to enter into an interest rate swap.

Goldman did not comment on the nature of its swap activities.

-- Andy (2000EOD@prodigy.net), August 23, 1999.


Rats fleeing the singing vessel

Goldman braced for exodus of partners-paper

LONDON, - Investment banking giant Goldman Sachs is expecting the number of top executives to leave the company over the next two years to be higher than normal, The Independent newspaper reported on Friday.

The Independent report said senior officers at the bank have told Wall Street analysts they are prepared for around 40 to 45 departures over the next two years, materially above the usual number.

-- Andy (2000EOD@prodigy.net), August 23, 1999.


Why does Goldman Sucks want physical gold?

From Gold mining outlook

"Gold lease rates continued to inch lower, but six-month lease rates remain at an unusually high 3.04%.

"While price inflation in the U.S. remains low, the June 99 ratio of stock-to-sales showed a reading of 1.34, the lowest ever recorded. In the past several years, increased sophistication with computers and the use of the "just in time" philosophy have convinced most purchasing managers not to accumulate excess inventory.

Because of years of stable prices, purchasers who during inflationary times in the past built inventory as a hedge against potential spot-price increases now are confident that they will always be able to get sufficient quantity from the spot market at a reasonable price. Therefore, if a shortage of any commodity does develop, there is so little buildup that simultaneous purchases on the spot market could lead to a rapid price spiral. If one or more such spirals were to occur, other purchasers would likely revert to their traditional methods of building inventories as a hedge, which because of the currently extremely low inventories will also push up prices. And if a consensus develops that inflation is indeed a threat, continued inventory buildup would fuel it further."

It seems that everywhere we look there is evidence that when the PM prices finaly break their shackels the up move could be explosive. Could it be that GS is giving us a hint as to when the move might start?

-- Andy (2000EOD@prodigy.net), August 23, 1999.


Goldman Says Gold Bullion Holding Sign of Demand

New York, -- Goldman, Sachs & Co. has amassed $124 million of gold bullion, saying it expects demand to improve in the months ahead.

Goldman has taken control of half of the gold in New York Mercantile Exchange warehouses, according to the exchange records. Goldman described the transactions as normal business activity, though some traders speculate that a shortage may be developing. ``People smell a rat here,'' said John Brimelow, head of international equities research at Donald & Co. in New York. ``Nobody else seems to believe this is at all normal.''

Goldman turned more positive on the gold market in late July amid expectations that reduced mine output will lead to higher prices.

Prices fell almost 13 percent after the U.K. Treasury said in May that it would sell about 60 percent of its gold reserves. The decline forced two gold companies in South Africa and Sweden to file for bankruptcy and led six South African mines to say they intend to fire 11,700 miners.

Yet gold has rebounded 3.5 percent from a 20-year low on July 19 and this week alone it gained 1.7 percent, the biggest one-week rise in 10 months. ``We are seeing strong physical demand,'' said Goldman's spokeswoman, Kate Baum, in New York.

Goldman had taken delivery of 473,500 ounces of gold as of Thursday through 4,735 August futures contracts, according to the exchange's Comex division, where gold, silver and copper are traded.

That's about half of the warehouse total of 948,973 ounces. The gold still is in Comex warehouses. The firm has been increasing its gold holdings all month, the exchange said.

The metals market has attracted other big investors in the past few years.

Tiger Management, the New York-based hedge fund, is estimated to have bought as much as 1.5 million ounces of palladium, or about one-fifth of world supply, while billionaire investor Warren Buffett's Berkshire Hathaway Inc. last year said it had accumulated 130 million ounces of silver, equal to about a quarter of annual mine output.

-- Andy (2000EOD@prodigy.net), August 23, 1999.


GOLD BULL IMMINENT By Amanda Lang

Financial Post

NEW YORK -- If only gold behaved like other commodities, one could reasonably expect the price of bullion to rise.

Two separate industry groups this week painted a portrait of wonderful conditions for producers: rising demand coinciding with falling production.

According to the World Gold Council, demand for gold climbed 16 percent in second quarter, a record for any three-month period.

Meanwhile, the Gold Institute, a Washington industry group, said production of gold worldwide will decline this year for the first time in 20 years and be flat for the next four years.

That should produce a price increase. For gold bugs, who have watched the yellow metal slide in price from $420 an ounce in 1996 to around $260 now (all in U.S. dollars), such a demand increase appears as manna.

One signal of that dissonance is clear from the concern around central bank gold sales, said John Lutley, president of the Gold Institute. Central bank sales have captured headlines worldwide in recent years, but sales by banks were actually lower last year than, for instance, in 1996. And without those sales, the world would have faced a gold shortage last year.

"Demand for gold far exceeds mine production," said Mr. Lutley, with the difference made up by recycling or scrap and central bank sales.

The problem, said John Ing, president of Maison Placements Canada Inc. in Toronto, is that while the paper market obscures the true picture of supply and demand, it could also represent a pending threat.

Producers, led by Toronto-based Barrick Gold Corp., have learned to hedge their production output. In Barrick's case, it has sold forward about four years' worth of production, meaning it has sold at current prices gold it won't mine for years.

Hedging allows mining companies to offset production costs while locking in current prices, in the event bullion prices fall. It didn't take long for savvy investment bankers to realize they could borrow the gold for these hedging programs from central banks, which offered low lending rates. By borrowing at, say, 1.5 percent, bullion banks such as Goldman Sachs could then invest the capital in treasuries yielding 4 percent, and pocket the difference.

That "gold carry" is, like the yen carry used by hedge fund Long-Term Capital Management, a bet on "spreads."

This is fine in a static environment. But as the world learned when Long Term's yen bet turned sour, the world can be volatile.

A similar change in spreads on the gold carry would wreak havoc that could make LTCM -- which threatened the financial system down last year -- seem a minor incident, Mr. Ing said.

Goldman recently bought 4,700 futures contracts for bullion, Mr. Ing noted, which could be a sign the bank wants to get its hands on some actual gold.

"The paper market has flooded the physical market for gold," Mr. Ing said, "which is why we are close to a 20-year low."

Ultimately, the fundamentals for gold are bullish, experts said. While lowered production -- largely a result of cost-cutting driven by the low price of their product -- isn't the best scenario for mining companies' long-term results, higher prices might help gold companies jump back into exploration in a hurry.

Meanwhile, the huge short position on gold could get squeezed out of the market as fundamentals force the price upward, analysts said.

"These guys are sheep, when one moves, they all do," said Mr. Lutley. Any weakening in the U.S. dollar would be good news for gold.

And, he added, investors may have new-found interest in gold if stock markets fall sharply.

It is just a matter of time before gold will emerge roaring from its 20-year decline. Just like the CRB Commodity Index which is heavily weighted in agricultual food products. Gold is no more a "barbarous relic" than is food - that is to say the CRB Index which just a couple of weeks ago was groveling at 23-YEAR LOWS.

And gold's upward move will be ELECTRIFYING. Needless to say that as the bullion roars out of the chute, gold and silver stocks will literally soar - due to its extreme leverage. Historically, precious metals stocks appreciate 3 to 5 times more than the bullion.

Conceivably, the so-called Day-Traders and e-Traders will help propel gold and silver stocks into the ionesphere as they abandon the internet '.com' companies.



-- Andy (2000EOD@prodigy.net), August 23, 1999.



This is why I have accumulated 14,880 ozs of silver, 70 ozs of gold, 103,500 shares of gold stocks, 26 december gold calls and 30 dec dow puts in the last 8 months. Only a few can ever prosper. Will you be one too?

You Know who

-- no spam (nospam@spam.spam), August 23, 1999.


no spam...

This is what you said...

BTW I applaud your bollocks,

"This is why I have accumulated 14,880 ozs of silver,

Digital I presume - that amount of ounces is HEAVY :)

70 ozs of gold,

Me too

103,500 shares of gold stocks,

slightly less alas... :)

26 december gold calls and 30 dec dow puts in the last 8 months. Only a few can ever prosper. Will you be one too?

We all want to know the specifics... calls at what :) 850! 666! 327!!!

What puts - this is the crux - 6,500? 9,777?

I admire your strategy, if you want to know the truth I've just blown a very tidy anount of silly money on a related gambit....

Slainte!

-- no spam (nospam@spam.spam), August 23, 1999.

Later,

-- Andy (2000EOD@prodigy.net), August 23, 1999.


andy,

the way you talk about gold it makes me wonder if you are in the business.

-- Guns, Grub & Gold (home@the city.com), August 24, 1999.


No, not in the business, just taking an interest - I see the whole gold manipulation as a mirror of what's also happening with y2k... people in "the know" pissing on the little man...

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

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