San Gold Corporation

Has this happened again? The usual suspects are at the scene of the crime again and history is not just rhyming, it is repeating.

http://vdare.com/jb/ltcm.htm

"This brings us to the interesting question of gold, a market in which Goldman became peculiarly influential in the '90s. Eighteen months before LTCM's demise, Frank Veneroso was told by a prominent hedge fund manager (unmentioned in this book) that LTCM was short four hundred tonnes of gold. This seemed plausible, because we were aware of a more rapid expansion of Central Bank bullion lending than could be accounted for by known borrowers, and it was obvious that a heavy seller had been active in the market.

Moreover, it was becoming clear that large hedge funds and bank proprietary desks, having profited enormously from the "Yen carry" trade (borrowing cheap Yen to fund higher yielding positions in other markets) were hunting around for similar situations. Since gold interest costs ("lease rates") were even lower than Yen, and bearishness was rampant, such a strategy had logic. I was told by a sophisticated derivatives man that he doubted LTCM would take the "basis risk" (e.g. borrow or short gold with no hedge). But Lowenstein reveals that the fund took substantial basis risk right from inception: much of the Italian sovereign risk was unhedged (merely very closely watched).

We were never able to confirm this story. But given the manic secretiveness Lowenstein reports was characteristic at LTCM, this was hardly surprising. Anecdotal evidence continued to accumulate."