Dear Comrades In Golden Arms,

Gold traded above $1100 this morning.

The US dollar is not a safe haven regardless of what F-TV tells you.

Gold is headed to $1224, $1650 and then on to Alf's numbers. Shorts still attempting to hold down juniors will fail. Majors with huge short of gold derivative losses have endangered their balance sheets, and will take action to repair them which dilutes and represents an asset loss.

I will write up and review the gold share field this weekend.

Regards,
Jim

From Jim's Mailbox, November 5, 2009

Dear Jim,

How do the majors seem to survive covering short of gold derivatives without going broke?
Why did they wait so long?

CIGA Arlen

Dear Arlen,

Have you not seen that each of the majors experiencing this do two things:

1. They sell everything they have that is not in full production.
2. They float major bond deals to fill the hole caused by the losses taken.

As to why they wait so long, it is my opinion they would not even now have covered except for a hidden margin call feature of the short of gold OTC derivative. A clause in the arrangement focuses on the bond rating and balance sheet condition of the hedger. The loss on the hedge is calculated against the company's assets and liabilities. If the balance sheet is challenged to the limit it triggers an obligation to pay up or close the commitment. Many of the reductions and closing of hedge books has not been as much a decision as it is a contract requirement.

Regards,
Jim