LBMA Shorts Will be Forced to Take Losses

derryb

"It’s going to force true price discovery for gold and no one knows what that is."

LBMA Shorts Will be Forced to Take Losses

jmski52

Fractional reserve banking, fractional reserve accounting, notional values and the whole ball of wax may be headed to the circular file.

That isn't to say that the Chinese won't pull something just as devious, but at least it's a nod in the right direction.

Any thoughts on where gold can go when this takes place? People are going to start taking gold seriously.

Konahead

Wow, let the fun begin.

MsMorrisine

the article wasn't clear enough for me with respect to actions that will result on LBMA based futures contracts.

If someone possesses a futures contract based upon a LBMA promise, one can settle in gold (uncommon) or cash (right?), or simply sell the contract.

I do not understand why the Pan Asian exchange's creation would necessarily force anyone at the LBMA into going to "full physical backing."

Sure, the other exchange may steal market share due to "no counter party risk" (do you trust China to ""save your gold for you?? really??"")

But, force the LBMA into full physical backing? I don't see it.

Why won't people satisfied with the LBMA's status quo, continue to be satisfied with the status quo? settle in cash?? I see no "forcing" it to 100% physical, (and I'm not in a big hurry to trust communist china with anything money related.)



Anyone care to explain??

derryb

<< <i>the article wasn't clear enough for me with respect to actions that will result on LBMA based futures contracts.

If someone possesses a futures contract based upon a LBMA promise, one can settle in gold (uncommon) or cash (right?), or simply sell the contract.

I do not understand why the Pan Asian exchange's creation would necessarily force anyone at the LBMA into going to "full physical backing."

Sure, the other exchange may steal market share due to "no counter party risk" (do you trust China to ""save your gold for you?? really??"")

But, force the LBMA into full physical backing? I don't see it.

Why won't people satisfied with the LBMA's status quo, continue to be satisfied with the status quo? settle in cash?? I see no "forcing" it to 100% physical, (and I'm not in a big hurry to trust communist china with anything money related.)

Anyone care to explain?? >>


Given a choice the big investors (pension funds, etc.) will invest where they have solid backing. Since they are investing in gold, it is important to most that there be gold.
Would you buy life insurance from an insurance company that you know doesn't have the money to pay your heirs? Now there is a new insurance agent on the block with a better policy.
As far as investing with "communist China" most PM advisors recommend that you own physical metal and that it be held outside of the US. The investment/financial industry is a global industry, moreso than most other industries.

MsMorrisine

if it is a choice between trusting china and trusting the lbma, I'll take the lbma any day.

derryb

<< <i>if it is a choice between trusting china and trusting the lbma, I'll take the lbma any day. >>


the LBMA has leverage of about 100-1 on the gold bars settled on the exchange. In layman's terms, that means if 100 clients requested their bullion bars be delivered, the exchange could only give one client the precious metal. If you sell something you don't own, I call it fraud. I would trust six Chinas before I trusted the LBMA.

MsMorrisine

one china can seize your anything in their country and it will be "legal" because they are communists.

derryb

<< <i>one china can seize your anything in their country and it will be "legal" because they are communists. >>


And things are different here?

1jester

<< <i>one china can seize your anything in their country and it will be "legal" because they are communists. >>



Yes, "they" are commies and we are ..... what?! Sorry, ma'am, but you need to open up your eyes and take a look around.

tincup

Regardless of whether one trusts the communist nation enough to invest in... one item does stand out to me.

And that is the likelihood of price discovery. As the article pointed out, much of the LBMA activity results in little physical demand in the actual world wide supply, since it is just a ledger entry. Thus true price discovery is avoided. When a person holding a contract wants actual delivery, the LBMA may try to purchase the gold, but more than likely will just settle in cash.... again, this avoids price discovery process.

I suspect it will not take many contracts with the Chinese exchange before we see the prices going up due to a more true price discovery process. Especially when they get a few large contracts, the actual purchase of the gold will have an effect.

derryb

<< <i>Regardless of whether one trusts the communist nation enough to invest in... one item does stand out to me. And that is the likelihood of price discovery. >>


BINGO!

MsMorrisine

I don't know how much market share they will steal.

maybe it will be a lot and send a message to LBMA and the CME and others.

however, I do think that as long as people are satisfied with settling in cash or just selling open positions when they could already be asking for physical (physical settlement is always a choice with many of the 100 oz gold futures contracts), that "price discovery" is already taking place in a manner that satifies people.


I think this is a big buildup to more of the same.

Coins101

Let me get this straight.

We have one place where you buy something that actually exists but could be seized.

On the other hand, we have a place where you buy something that doesn't exist but can't (supposedly) be seized.

Well, I guess you are right. You can't seize something that doesn't exist.