-->vom USAGOLD Forum:

The press release from NMR to me was more revealing than the colorful journalism that accompanied the announcement and my reading of it was that Rothschild was leaving the"trading" aspect of the gold business, but that they would continue with lending end of things which is where the real money is made. I've linked the actual price release above which was provided this morning by our good friends at thebulliondesk.com. I wouldn't be surprised however if they slowly but surely unwound the gold lending business as well, in that the nature of the business itself has changed and the role of lender to the mining companies is diminishing on its own. With Rothschild the motivation is the lack of returns on the simple commission gold business - which trades at very thin margins. The bigger profit gold carry trade business - which included loans and hedging operations (and all the management fees attached) - is dying, if not already dead, as mine companies go to the demand side of the gold fundamentals ledger. It signals the future of gold. The death of the gold carry trade/mine hedging businesses has come to fruition as I predicted a long time ago with the Rothschild retirement from the Fix being a final and highly symbolic milestone. Others will follow, as they go on to what they deem to be more lucrative businesses.

But what is the City's loss will be the physical owners gain because what the Rothschild withdrawal signifies is a reduced role for the banking functions - the operations as Aragorn and FOA pointed out here long ago that became anathema to higher prices. What is ironic about the whole thing is that the seeds of Rothschild's self-styled withdrawal as the lead firm in the London trade were planted a few years back by the firm itself when it pushed hard for more transparency in the gold market. NMR played lead dog in an effort that ultimately led to the first Washington Agreement and the beginning of the end for the gold carry trade and mine company hedging programs. That effort was led by a friend of a mutual friend of ours who posts under the CoBra handle - Guy...............(can't remember his last name) perhaps CoBra can help us.

I accept what NMR is saying at face value. I do believe that they do not do enough business on what they call the"commodity" end of things to support the infrastructure required to do it right. I note that they were careful to let their mine company clientele know that they would not be abandoning the business completely, and I'll tell you why I believe they went to those lengths: The trend now is for miners to buy back their hedges. Over the last few months I have been doing a great deal of research for the publication of the updated version of The ABCs of Gold Investing, and I can tell you, unequivocably that the most important development over the last few years is the swing by the mining companies from the sell side of the fundamentals ledger to the demand side - a swing of between 500 to 600 tonnes on the average (using GFMS' conservative numbers). That is a very big number. (I read with interest the comments here the other day about various writers picking up things and running with them. Wait til this little observation sinks in.) Rothschild is aware of the number. The hedge funds are aware of that number and that is why they are now net long the gold market.

People talk about paradigm shifts all the time and throw the phrase around with casual aplomb, but let me say that this is the kind of paradigm shift all of us in the gold market have been waiting for. (And now I've given you a glimpse of the theme of the new book - just recently accepted for editing by my publishing house). And this is precisely what Rothschild is reacting to.

I would not be surprised to see that firm end up in this market as an investor, as opposed to a broker - a move in keeping with their long history of exploiting major opportunity. There is more money to be made as an investor in gold these days, than in brokering it. Rothschild has no interest in the retail business, and that's the only place money can be made with regularity in today's gold business - they have always been essentially a wholesaler and syndicator of financial opportunities, and I couldn't think of a better opportunity at the moment than gold. However, I believe they will keep it to themselves just exactly how they will go about exploiting that opportunity.

Now here's the last part of what I have to say on this for the moment and now the groundwork is there to tell you why I believe Rothschild was so careful in their announcement today to let their mine company clientele know they would be there for them. Since the trend among mining companies is to buy back metal and settle their hedgebooks, how would you feel if you ran a mining company and one of your chief bullion banks told you they were cutting and running in toto? Your first question would be:"Well, how will I go about settling my book? I thought you would be here to buy for me if I needed it." That's the one thing I find unsettling about this whole withdrawal. If Rothschild had announced that they were completely out of the business, I think several mine company executives would have had to have been peeled from the ceiling. As it is, they say they are not dropping their lending business. Does that include assuring their clientele that they will be buying gold for them? Let's turn the coin over. Maybe, it is precisely because they have to buy for their clientele that they no longer want in on the London fix and the daily trade AS THE KEY PLAYER!