In many ways, it will be the paper longs that abandon the gold markets (forcing prices ever lower) even as the physical price soars. Yes, the shorts may make a killing but the money they make will be worthless!!!!!!
MF Global seems to be scaring a lot of participants off. And, be honest, who had heard of 'hypothecation' (let alone 're-re-re-re-rehypothecation') before last week? Seems like everyone and their dog is using it now.
Why did I pick this track?
Who will be lonely in the market?
Why will this determine the price direction of paper gold?
5 comments:
(forcing prices ever lower) even as the physical price soars
Buy. Physical. Gold. Now.
I consider rehypothecation just another "derivation" of a world where defaulting debt is the cornerstone of wealth.
-W
Hi DP!
I talk to one of my readers who's kinda in the big leagues. He's worth at least $10M and works with all the big hedge funds. He says they're all panicking out of "gold" right now. And by that, I mean every sort of tradable "gold product" except physical (miners, GLD etc…). He got two separate calls from two hedge fund clients yesterday saying that "something must be going on that we don't understand. None of this with gold makes any sense by our models. So get out now!" So he emails me this today…
>"I hate to say this, but it looks like we have some serious
> liquidation that is going to continue in the gold market. My guess, is
> that we have another hundred and 50, maybe even $250 to the downside,
> i.e. around
> $1400 or so.
I reply with…
That actually excites me! The more liquidations,
> the higher the probability that "this is it" (to use Jim Sinclair's words).
He comes back with…
"The thing is though FOFOA, I don't think this is IT yet."
So I say…
"No one does! And that's when it's most likely to be "it".
Point is, so what if everyone panics out of every kind of "gold" other than physical? As long as that liquidation is happening at a faster pace than the liquidation of physical, and remember there are some giants that are buying physical on the dips, that puts extreme pressure on the BBs. If the price drops that much, they've got to source the physical they sell at those lower prices for the price of paper gold to remain representative of the value of physical. If your assumption is that the CBs are still willing to support that connection with physical, as GATA's assumption is, then sure, they can handle it with CB backing. But I don't think the CBs are doing that. So I guess we'll see. If it drops to $1,400 I'd expect to see the biggest GLD puke ever, since that may be the only place for the BBs to get that kind of physical *IN SIZE* anymore. That's my thesis. The GLD puke has nothing to do with the AP's managing the NAV of GLD nor does it have anything to do with the sentiment of GLD investors. It has everything to do with the BB's (who are also APs) needing massive amounts of physical during the correction."
Just sayin'
I view today's whole global monetary financial system as a sort of inverse game of Pass The Bomb. Where everyone is passing around their capital in a really big circle, but the twist is that when you pass on your capital to the next player, you keep a bomb. Until just about everyone has a bomb. Then one goes off.
Know Thy Neighbour
INFJ
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