Posted on 09/27/2001 9:49:54 AM PDT by NativeNewYorker
New York, Sept. 27 (Bloomberg) -- Gold futures had their biggest decline in three months, as some investors lent bullion they had purchased after terrorist attacks on the U.S.
While there is little hope of a sustained rally as a result of the attacks, investors are reluctant to sell gold they bought as protection from declines in the value of other assets, such as stocks, traders said. They are instead lending bullion to improve returns from the investment, adding supplies to the market.
``People have bought gold and now they have gold to lend,'' said Donald Eckert, head of precious metals trading at J.P. Morgan Chase & Co. in New York. ``They're scared to sell it.''
Gold for December delivery fell as much as $4.30, or 1.5 percent, to $290.50 an ounce on the Comex division of the New York Mercantile Exchange, the biggest one-day decline for a most-active contract since June 27. While gold futures have risen 6.1 percent since the Sept. 11 attacks, they are down from the 19-month high of $300 reached on Sept. 14.
The increased lending of gold sent interest rates on the transactions lower. The London bank rate for lending gold for one month fell to 0.4488 percent, on an annual basis, from 0.6738 percent yesterday.
Gold rallies have been short-lived in recent years, as tame inflation gave investors little interest in holding the metal as a hedge against falling prices. Gold has lost about one-third of its value in the past five years.
``The only sustainable rallies are driven by consumer demand, and we haven't seen one of those for years,'' said Robert Doyle, an analyst at Credit Suisse First Boston in Toronto.
Besides, if you've ever actually dealt in physically trading the metal, you know what a hassle it is to have to melt down your bullion and have it tested (can't have lead hidden inside gold bars) everytime you want to move it from one bank to another.
It costs too much to store gold (security, space, availability, insurance) and it costs too much to trade gold (melting it down, having it tested for purity, etc).
While Gold is down (and we've just had the largest terrorist disaster in all of history), treasury bonds are up. People clearly feel more comfortable putting their cash into government-backed bonds than they do into putting it into unbacked bullion.
Ah yes, the good faith and credit of Uncle Sam. What happens when the billions of foreign owned FRB notes are unloaded because the dollar is sliding?
Historically, gold was used to back currencies, not the other way around.
Keep your eye on JP Morgan too, ever heard of derivatives? They are leveraged by derivatives 365 times greater than their market cap. That might provide some excitement.
Why? That makes for a neat slogan but it doesn't exactly provide any supporting facts. Do metals normally rally AFTER nearing their 1 year highs, for instance?!
Gold is below the cost to mine it (worldwide average cost is $300 per ounce) because people don't want it anymore.
Gold is lower now than before the terrorist attack on the WTC and Pentagon because people don't trust it as much as they trust government-backed instruments such as Treasury Bonds.
Gold has declined EVERY year for more than the past twenty years. Why would it suddenly rally now?
Frankly, with all central banks dumping their old gold stores onto the market, I can't see a few craven "investors" suddenly driving up the price of the ugly yellow metal.
Historically, salt was used to back Roman currencies and pay Roman soldiers (hence the phrase which endures today - "worth your salt").
But I don't forecast a rally in Salt prices, either.
Just examine facts. Where did people put their Billions after the WTC and Pentagon attacks? Into Gold or into Treasury Bonds?
Like I said, gold is dead because people trust government-backed instruments more than they trust unbacked metals.
What about Kruegerrands?
Not true. Gold was sitting at $271/oz on Sept 10. Gold Charts. When the Fed pumped some $85B in liquidity into the banking system, it popped up. Since they took $60B out this week, it has declined.
There are still a few holdout banks in the world which will accept gold on deposit, but they ALL require you to melt it down and have it tested for purity, unless you pay them RENT to store your gold in non-interest-bearing safe-deposit-boxes.
So you are faced with EITHER paying to have your gold melted down and tested, or else you are forced to pay rent to have your gold stored, insured, and guarded.
Incidentally, you mention "metal backed by nothing". Does gold not have an inate value and is it not a more "moentary like" commodity that salt since salt can be grown?
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