Gold bugs out there might be familiar with this, I wasn't though I had heard vague notions of such; so I found the following ideas rather interesting.
The whole article is in today's online Baron's :
http://online.barrons.com/article/SB...usives_weekend
As non-subscriber's may not be able to get the whole article, here's the guts of the idea
The prioblem, of course, is that when gold starts getting volatile (like now), bullion banks are sitting on essentially large short sales on a rising commodity; they have to buy back quickly (particularly if the the CB's want their gold back); driving the price up further....Lots of potential there for profit and/or disaster....
The whole article is in today's online Baron's :
http://online.barrons.com/article/SB...usives_weekend
As non-subscriber's may not be able to get the whole article, here's the guts of the idea
QuoteDislikedCentral banks are sitting on huge supplies of gold that earn them no interest and cost them money just to store securely. To earn a little revenue on these static assets, they loan their gold to banks, called buillon banks, at a ridiculously low interest rate on the order of 1%.
The banks turn around and sell the gold in the market, typically in the London bullion market, and invest the proceeds in a higher-paying asset, such as long-term Treasury bonds. If bonds pay 4.6% then the banks earn an easy 3.6%.
The prioblem, of course, is that when gold starts getting volatile (like now), bullion banks are sitting on essentially large short sales on a rising commodity; they have to buy back quickly (particularly if the the CB's want their gold back); driving the price up further....Lots of potential there for profit and/or disaster....
