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Gold investment and buying

  1. #41

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    Quote Originally Posted by jrkob
    I should have been clearer perhaps that I was responding to traineeinvestor, he says he's already investing in bank notes (post #29) and therefore already taking all these risks, he is okay with cash settlement as well.
    Ya aware of that, just trying to point out the issue with CME future contracts and the paper gold market.
    Not sure how a hike in gold price will impact the credit worthiness of BOC, but i personally would rather take UOB Sg's credit risk on gold bar than CME's/LME's contractual risk in gold delivery.

    Anyway I believe the Asian banks are more wary of the impact of gold to the financial market, and maybe the possibility of a break in correlation between paper gold and physical gold price. But I might be wrong. Anyway the only paper precious metal I have now are some pension fund related purchase of GLD listed in Singapore market.. Sticking to physicals.

  2. #42

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    You're demonstrating a fundamental lack of understanding how LIBOR was fixed if you think it was just people with big pocket trading. LIBOR pricing was comprehensively manipulated.


  3. #43

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    Quote Originally Posted by TheBrit
    You're demonstrating a fundamental lack of understanding how LIBOR was fixed if you think it was just people with big pocket trading. LIBOR pricing was comprehensively manipulated.
    Ok I generalized a little. but let's break down the whole Libor issue and see the history of manipulations

    Up to 2007..
    - Eurodollar was the most traded futures on earth.
    - 3mLibor, which is indirectly expressed via Eurodollar, actually has real meaning. It was the interest rate for a 3mth deposit between two AA rated banks. If one is to quote 3mL high or low, you are going to get hit with the actual trade. i.e. whoever has money on the table will get to move the market.
    - 3mL fixing was quoted by the money market traders based on their borrowing and lending trades. But they are not the swap trader that were impacted on the floating leg of the long dated swaps.

    So up to this point, most can agree that 3mL fixing is determined by market force..

    Now come 2008.. 3mL pricing shot up not just on liquidity/interest rate, but also significantly on credit risk of the borrowing banks.
    And subsequently, it dropped back into its steady routine..

    However, nobody is really keen to lend on unsecured Libor deposits anymore. You get some small trades each day.
    For tenor longer than 3m, simply no liquidity. Why? 1. credit risk, 2. capital charges.
    So you have a market underlying instrument that has no trading liquidity.
    But as a money market trader, you are still expected to quote an 11am pricing each day.

    So what is the basis of this fixing quote ?
    Flip a coin ? Check with the brokers ?

    The fundamental of fixings I would say, generally are based on 1. what market is trading, 2. bank's position in the underlying.
    Money market traders mostly do not have Libor positions now. Then how can one fix the pricing ?
    If you ask me, if I am a bank, the way I will fix is simple.. If i have more position on the long end, i will fix higher. If i have more position short, I will fix lower. It is natural. Since it would be the same i will be quoting if i am trading. If I already have heavy long position on 3mL, the next quote i am asked for 3mL would have to be higher than what current market is for me to want to lend.

    Is that manipulation ? I am not going to judge.. its up to court interpretation and public opinion.
    The fundamental problem was that BBA Libor, post 2008, was outdated and no longer meaningful. If the authorities and associations in a whole are not going to change the model, then how would they expect traders to quote these in a meaningful sense ?

    So, what is manipulation and what is not ?
    No doubt you can claim the big bank traders collaborated to fix the levels. But factually, if i am a trader and my positioning will lose money with a higher Libor level, no amount of collaboration is going to get me to fix the level higher just to benefit the other traders in my chat group.

    So who's fault at the end ?
    I don't have an answer. We can all take it at face value.

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