July 08, 2010
– Comments (4) |
RELATED TICKERS: GLD
My thoughts on this topic. I welcome all respectful/ informed criticism.
Alex .. great piece. I'm glad you picked it up. I was knee-deep in this comparative analysis of junior producers. :)
As I mentioned in a comment to your article, I think Adrian Douglas has some interesting things to say about the topic as well.
Here is Douglas' commentary.
Thanks very much. I was going to solicit your feedback since you know more about this market than I do.
I looked at the commentary you linked to. I don't know anything about Adrian Douglas, but I was chuffed to find that he makes the same hypothesis I did: that these swaps are, in fact, tripartite transactions involving a commercial bank, the BIS and a central bank. Perhaps I'm starting to develop the right thought processes for this market ;-)
Adrian is a member of GATA's board, and a phenomenal analyst of the gold market. His paper "Pirates of the COMEX" will be remembered as a seminal contribution to the understanding of the fraud that pervades this opaque market.
Adrian Douglas, member, Board of Directors. Douglas graduated from Cambridge University in 1980 in natural sciences. He worked for 20 years in the oil and gas industry with Schlumberger, where he reached senior management positions in marketing and sales. He established a successful consultancy business specializing in pricing and marketing called InnovoMark (www.Innovomark.com). He developed unique methodologies related to pricing and marketing that have been incorporated into proprietary training programs. His study of commercial enterprise pricing led to his interest in the market pricing mechanisms of financial assets. As a result he developed a unique algorithm and methodology for analyzing financial futures markets and in particular for identifying appropriate entry and exit points. The technique has been named "Market Force Analysis" and he publishes the market letter of that name. (www.MarketForceAnalysis.com).
I have interviewed him at length and been tremedously impressed by his intellect and his comprehensive understanding of the gold market.
And yes, by all means, the fact that you came to similar conclusions on your own means that you are approaching gold with the critical eye necessary to see through this market's opacity.
I would guess that the real risk of a large amount of physical gold quickly coming to the market is the buying frenzie that it would trigger. Imagine Saudi Arabia, China, PHYS and many other private investors putting in bids. The news would be difficult to hide. The herd mentality would then take over and the gold price would likely break out above its recent trading range. This would be sure to cause problems for countries trying to keep their borrowing costs down. So I doubt that any significant amount of gold will enter the market this way.