Posted on 07/24/2002 8:29:42 AM PDT by Fitzcarraldo
Source: www.kitco.com
Thanks for the "short explanation"...I saw the GATA guy on C-Span this a.m. but am too ignorant to understand the implications of what he was saying! I will check out the site, as it sure sounded like there was some dangerous skulduggery going on...
Several years back the Hunt brothers were charged trying to fix it I think. They had it up to $8/oz if I remember correctly. They would have made an absolute fortune if it worked. Not sure what the penalty was.
It was back around 1981. They drove the price of silver up to around $50.00\ounce. I had a coin collection that was pushing $25,000 and I was only 16 (Whoops, I'm dated...).
;-)
info source, PLS.
All I know is that I definitely ain't buying into this market on my own, and my weekly 401k donation had better not go in in the middle of this sucker-bubble.
Among the day's most noteworthy rumor was that the Federal Reserve was convening an "emergency meeting" to deal with the market's meltdown in general and J.P. Morgan's derivatives exposure specifically.
A spokesman for the Fed did not return phone calls seeking comment (not that I expect it would have commented, anyway). Late Tuesday, Adam Castellani, a J.P. Morgan spokesman, called and said the rumors were "completely untrue and irresponsible."
At the end of 2002's first quarter, the notional value of derivatives contracts involving U.S. commercial banks and trust companies was $45.9 trillion, according to the Office of the Comptroller of the Currency's bank derivatives report.
The OCC noted seven commercial banks accounted for almost 96% of the total notional amount of those derivative contracts, which are complex financial instruments that are used to hedge risk against and/or increase leverage to movements in various financial assets. J.P. Morgan Chase is far and away the most active participant in the derivatives market, with involvement in $23.2 trillion, or 50.5% of the total. ("Notional value" is the total value of the contract, and J.P. Morgan's direct exposure to those derivatives was $51 billion as of Dec. 31, or less than 1% of the notional value, according to the firm. About 80% of the company's exposure was with investment-grade counterparties.)
For some time now, years literally, the hard-core bears have been talking about a "sum of all fears" scenario involving J.P. Morgan's exposure to derivatives in general, and bearish bets on gold in particular.
Today, the price of gold fell 3.4% to $312.60 per ounce, its lowest close since July 8, while the dollar rallied sharply vs. the euro, which fell below parity to 98.62 cents vs. yesterday's close of $1.0080. The dollar also rallied against the yen, and the dollar index rose 1.95 to 107.08.
Given the greenback has recently been moving in the same direction as equities (i.e., down), while gold has been trading inversely (although more sideways-to-down of late), today's movements were somewhat curious.
Indeed, a person given to conspiracy theories might surmise the Fed did convene a meeting today and decided to intervene to boost the dollar and weaken gold in order to help alleviate pressure on money-center banks, such as J.P. Morgan and Citigroup.
From thestreet.com
Morgan and Citi were involved in the 'gold carry trade'. They leased gold from the Treasury at low interest rates (1% or so), sold it, and then invested the proceeds in gov't bonds. They made the spread and it added up to a lot. A nice business, as long as the price of gold doesn't rise. If goes up to much, they won't be able to cover their short positions, which are huge at this point (greater than the global annual production of gold) and the Treasury doesn't get their gold back.
They were not foiled by market forces, but by insiders changing the rules on the exchange (after taking up short positions for themselves). Here's an excerpt from an editorial posted on gold-eagle.com:
A similar thing happened in 1980 with the Hunt brothers. They [the exchange] basically changed the rules, and said their could be no more buying of silver...period. You couldn't buy it on the future's exchange. There could only be sales. When they closed the market down and reopened it, and only selling existed, well, as I stated in earlier in the show, when you have more sellers than buyers, the price goes down
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