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Brace Yourself for the Coming Gold Shortage

madhedgefundtrader's picture





 

Brace yourself for the impending gold shortage. Gold shortage? Yup. With the launch of a flurry of ETF’s devoted to the barbaric relic recently, total ETF holdings have soared well past 60 million ounces worth $65 billion, more than total world production in 2009. The grand Daddy of them all, the SPDR Gold Shares (GLD), now has a staggering $42.7 billion of the yellow metal, making it the second largest ETF by market capitalization, and the fifth largest gold owner in the world.

When gold suffered a hair raising $150, 12% pull back from the all time high in December, I was deluged by traders asking if this was the peak, if it was the final blow off top, and if gold is finished as an asset class. My answers were no, never, and not on your life.

A tidal wave of fiat paper currencies is now flooding the world financial system at an increasingly alarming rate. Obama has not suddenly become a paragon of fiscal restraint. Bernanke has not morphed into a tightwad. When I pull a dollar bill out of my wallet, it’s as limp as ever.

In 2008, South Africa suffered its steepest decline in gold production since 1901, falling 14%, to a mere 232 tons. It now ranks only third in global production of the yellow metal, after China and the US. Severe electricity rationing, a shortage of skilled workers, and more stringent mine safety regulations have been blamed. Choked off credit has frozen the development of new capital intensive deep mines, as it has for everybody else. Rising production costs have driven the global breakeven cost of new gold production up to $500 an ounce.

In the meantime, the financial crisis has driven flight to safety demand for gold bars and coins to all time highs. Last year, the US Treasury ran out of one ounce $50 American Gold Eagle coins, now worth about $1,150. Competitive devaluations by almost every central bank, except Japan, mean that currencies are not performing as the hedge that many had hoped, especially the Euro.

It all has the makings of a serious gold shortage for the future. The huge growth of the middle class will impact gold prices, as it has with other commodities. Linear growth in supply will get overwhelmed by a Malthusian, exponential growth in demand. Last year’s downturn is looking increasingly like a mere blip in the eight year bull market.

If you forgot to buy gold at $35, $300, or $800, another entry point is setting up for those who, so far, have missed the gravy train. We could be seeing a replay of 2008-2009, where the yellow metal traded in a sideways range for many months before blasting through to a new all time high and quickly tacking on 25%.
Start scaling in around $1,040. That’s where the Reserve Bank of India started the recent love fest for the barbaric relic with its 200 ton purchase in November.

If the institutional world devotes just 5% of their asset to a weighting to the yellow metal, and an emerging market central bank bidding war for gold reserves continues, it has to fly to at least $2,300, the inflation adjusted all time high, or higher.

ETF players can look at the 1X (GLD) or the 2X leveraged gold (DGP). Stock investors can entertain shares in Barrack Gold, the world’s largest gold producer. I would also be using the current bout of weakness to pick up the high beta, more volatile precious metal silver (SLV) and platinum (PPLT), which have their own long term fundamentals working in their favor.

For more iconoclastic, out of consensus analysis, visit www.madhedgefundtrader.com, where conventional wisdom is drawn and quartered daily. You can also hear me in person weekly by listening to Hedge Fund Radio by clicking here at http://www.madhedgefundtrader.com/Hedge_Fund_Radio.html

 


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Wed, 02/17/2010 - 10:51 | Link to Comment Anonymous
Mon, 02/01/2010 - 12:45 | Link to Comment Anonymous
Sat, 01/30/2010 - 16:16 | Link to Comment Anonymous
Sat, 01/30/2010 - 15:09 | Link to Comment Anonymous
Sat, 01/30/2010 - 11:21 | Link to Comment Anonymous
Fri, 01/22/2010 - 06:54 | Link to Comment Crime of the Century
Crime of the Century's picture

The year that the Rothschild's abandoned the London Bullion Market is the year that GLD was launched.

Fri, 01/22/2010 - 02:28 | Link to Comment mchawe
mchawe's picture

Gold is insurance. Buy it and keep it in your possession. GLD is a fraud. The custodians who can not be audited as to their holdings, are the same entities heavily naked short on Comex and are unable to deliver on each and every contract they are short. Those entities are also given a free pass for margin. (Unlike you and I, they don't have to produce any.) If you want an honest ETF, CEF is open for inspection, so I prefer to trust that if you insist on buying an ETF. ETFs are at risk of government confiscation.

Few people realise gold always does better in Deflation and is a poor investment relative to other assets in Inflation. Check out the S&P Index valued in terms of gold. I don't see a change in trend. If ZIRP and QE can flip Deflation into hyper inflation, then you better own gold !

COMEX. The Chief Operational Officer is ex Goldman Sachs. Don't expect proper regulation !

When gold is ready to go, the banksters will be loaded up. I believe now they will do just that with all the terrified longs handing it to them. If you go short you can expect a rude awakening at any time the banksters decide to suddenly remove their cap. That will be the day your stop loss fails.

If Ron Rosen is right Gold will now go to $600. (He uses Weldes Wilder's Delta Turning Points and Elliott Wave). I don't care: I will be buying all the way down in ever increasing amounts. Thank you Cartel. Without you the price would be well over $1500.

I have no intention of selling what I have. There was already a shortage at $1200. The US Mint was unable to keep up with demand. By the time the price gets down to $600 (if it does) I believe the real stuff will be UNAVAILABLE...unless you buy GLD (where it will not exist except in the imagination of the public.)

My favorite stock is Seabridge Gold (SA. Ca:SEA). They have the gold in the ground (heading towards 40m oz) waiting for a humungous take over battle by the Majors. They have no intention of getting it out themselves. But what a way to own over 1oz currently costing $27 without paying for storage and insurance!  Do the math !  It is worth checking out their web site to see their mining presentation (10 minute video).  It was the only gold stock I saw yesterday that went against the trend. That alone should tell you something.

Thu, 01/21/2010 - 23:31 | Link to Comment simplegump
simplegump's picture

this is all so very confusing

Thu, 01/21/2010 - 21:55 | Link to Comment Anonymous
Thu, 01/21/2010 - 21:51 | Link to Comment Anonymous
Thu, 01/21/2010 - 19:35 | Link to Comment Anonymous
Thu, 01/21/2010 - 15:29 | Link to Comment Apocalypse Now
Apocalypse Now's picture

Paper with the word gold after it is not gold, it is merely paper pretending to be gold.

Gold is the ultimate hedge fund: http://www.fofoa.blogspot.com/

 

Thu, 01/21/2010 - 14:11 | Link to Comment jimmyjames
jimmyjames's picture

 

And, "Rising production costs have driven the global breakeven cost of new gold production up to $500 an ounce." means that the current price is more than double the production cost - hardly a supporting factor of the price.

***********************************

Gold is thought to be an anti-dollar/fiat trade--

Not really--it is more of an anti-political trade--

What else rises on fear and drops on greed?

Gold and the dollar have done and will again trade together--

Competing as safehavens--

The price of gold is really irrelevant--same as "how many" dollars you have--

What is important is what your dollar can buy--

Same for gold--no different--

In deflation--everything deflates against gold--

Check your CPI against the POG/dollar locked--in the 30's--

Gold/dollar buying power increased dramatically--

http://www.gold-eagle.com/editorials_08/images/amerman021209a.jpg

It will do so in this deflation as well--

As for political insanity-ie- currency collapse--

No shortage of that--

Thu, 01/21/2010 - 12:56 | Link to Comment Anonymous
Thu, 01/21/2010 - 12:41 | Link to Comment Mr Lennon Hendrix
Mr Lennon Hendrix's picture

Peak Gold.  Bullshit GLD.  High demand.  Sounds like a catastrophe (or opportunity) in the making.

Thu, 01/21/2010 - 12:39 | Link to Comment thegreatsatan
thegreatsatan's picture

I would say if the shit really hit the fan, whiskey, ammunition, and medicines would be more valuable than gold

Thu, 01/21/2010 - 22:58 | Link to Comment Johnny G.
Johnny G.'s picture

+1

Thu, 01/21/2010 - 16:00 | Link to Comment Anonymous
Thu, 01/21/2010 - 12:32 | Link to Comment jimmyjames
jimmyjames's picture
by Leo Kolivakis
on Thu, 01/21/2010 - 10:09
#200708

I never was a gold bug. I have gotten burned on other manias (Nortel fraud really hurt me) and learned the hard way about not falling in love with any company. Gold seems to be a religion among many here. Good for you. I wish you all the best. If I thought inflation was a certainty, I'd be buying gold too

*********************************

Goes to show--just how f*ked up ya got it--

If i thought inflation was a certainty--I would sell gold and buy real-estate--

Have you even bothered to look at at a gold chart from 1980-2000/

Gold sucked--inflation all the way--

You simply don't understand gold and what it reacts to--negative or positive--

 

 

Thu, 01/21/2010 - 13:35 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

Another way of thinking about gold is that it a safe harbor when financial markets get rattled. I don't see this happening in 2010. Doesn't mean I will be right, but I'm shunning gold. If you "gold experts" are so convinced, all power to you! Hope you make money but I remain skeptical.

Thu, 01/21/2010 - 15:41 | Link to Comment El Hosel
El Hosel's picture

Leo,

Why is gold up 300% ( at least ) over the S&P 500 the last 10 years? We have not had "rattled" financial market during the whole period.... just corrupt and fraudulent financial markets.

Thu, 01/21/2010 - 17:22 | Link to Comment Herd Redirectio...
Herd Redirection Committee's picture

I don't own gold so I can see it increase its worth in fiat currency, and then convert it into fiat.

Gold ownership is a vote AGAINST the financial oligarchs,  and there is nothing I am driven more strongly to do, than oppose them.

I will own gold until 'sound money' returns,  even if that means holding gold until death (I figure I have 50-55 years to see that happen).

I will NOT own the Syndicate's proxy for sound money, Precious Metal ETFs! 

What a misdirection you are running here, my 'good' sir,  it is like you are knowingly leading people off the path...

Thu, 01/21/2010 - 12:30 | Link to Comment Anonymous
Thu, 01/21/2010 - 12:26 | Link to Comment Anonymous
Thu, 01/21/2010 - 16:38 | Link to Comment jimmyjames
jimmyjames's picture

by Anonymous
on Thu, 01/21/2010 - 10:26
#200727


Paul Volker is coming and he is going to vaporize gold.

Wild--what's he gonna do--raise rates to 20%?

USD to the moon--trade collapsed--fully unemployed country--

Don't think so--not this time--

Volcker prevented deflation--caused by gold--last time--by severing the $ link--he "saved"the $ by raising rates--

Those cards were dealt 40 years ago--

They're simply--not in the deck this time--

Thu, 01/21/2010 - 13:40 | Link to Comment SWRichmond
SWRichmond's picture

Maybe you can tell me where the money (revenues) will come from for paying government debt, when interest rates go up?

Maybe you can tell me how this is made possible politically?

Maybe you can tell me what happens to the growing dependency class(es) when government cuts expenditures enough to balance the budget, and raises rates into a rising unemployment rate?

These are not idle questions, I'd really like to hear your answers.

Fri, 01/22/2010 - 06:48 | Link to Comment Crime of the Century
Crime of the Century's picture

+1 The math was on Volcker's side last time. Now? Not even close.

Thu, 01/21/2010 - 13:18 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Happened before, may happen again.

But I don't think so.  Our .gov has essentially gone completely CRAZY.  The other .govs of the world inspire little confidence with me either.  When the Euro or Yen devalues (assuming we don'r beat them to it), the so will everyone else.

Thu, 01/21/2010 - 12:08 | Link to Comment Anonymous
Thu, 01/21/2010 - 12:07 | Link to Comment Anonymous
Thu, 01/21/2010 - 13:14 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

MobB, I'll buy your gold for $100 then, heeheehee!  Chortlesnicker!

I'll even take my chance that your Eagles are painted tungsten...

Thu, 01/21/2010 - 11:59 | Link to Comment jimmyjames
jimmyjames's picture
by Leo Kolivakis
on Thu, 01/21/2010 - 09:47
#200687

 

U.S. Leading Economic Index jumps 1.1% in December. Quick, buy gold...the world is ending! LOL! Let's see how well gold performs in Q1 2010.

************************************

sounds to me like someone who missed out on a ten year bull--

bet you said the same words in 01--

love you guys--cuz--you let me know everyday--that i'm in the right trade--

the 1st quarter of 2010--means squat--

Thu, 01/21/2010 - 12:09 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

I never was a gold bug. I have gotten burned on other manias (Nortel fraud really hurt me) and learned the hard way about not falling in love with any company. Gold seems to be a religion among many here. Good for you. I wish you all the best. If I thought inflation was a certainty, I'd be buying gold too. But I see a gradual recovery in the US with low inflation. Nothing exceptional, but not very "gold friendly" environment.

Thu, 01/21/2010 - 11:50 | Link to Comment Anonymous
Thu, 01/21/2010 - 11:47 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

U.S. Leading Economic Index jumps 1.1% in December. Quick, buy gold...the world is ending! LOL! Let's see how well gold performs in Q1 2010.

Thu, 01/21/2010 - 11:19 | Link to Comment Anubis
Anubis's picture

Madhedgefundtrader dude,

 

PALL is the Palladium ETF and not Platinum which is PPLT. Looks better if you fix the typo as the prices and metals are quite different. 

 

 

Thu, 01/21/2010 - 11:15 | Link to Comment 10044
10044's picture

When will the fcking crimex go broke

Thu, 01/21/2010 - 11:05 | Link to Comment Anonymous
Thu, 01/21/2010 - 11:01 | Link to Comment RockyRacoon
RockyRacoon's picture

Sidenote to address one of my pet peeves:  Gold was not referred to as "the barbarous relic".  It was the gold standard. 

This gold pejorative is readily attributed to Keynes.  But here is what he really wrote in 1923 in A Tract on Monetary Reform: “…the gold standard is already a barbarous relic.”

 

....the barbarous relic is central banking.

http://news.goldseek.com/JamesTurk/1126711755.php

Thu, 01/21/2010 - 10:52 | Link to Comment Anonymous
Thu, 01/21/2010 - 10:25 | Link to Comment BigBagHolder
BigBagHolder's picture

MFT - Were we supposed to "brace yourself" for the pullback in stocks last summer?

The problem with all gold and commodities theses - is that at their core they are just "weak dollar" stories.  If you look at the moves 2000-08 in EUR or a basket of foreign currency, they are not very interesting.

So why not just focus on the core driver -- USD?  Right now that looks pretty strong and EUR, JPY look structurally a little weaker on balance.

Thu, 01/21/2010 - 11:31 | Link to Comment Jean Valjean
Jean Valjean's picture

Yes but you are talking in relative terms.  The US$ is stronger than other fiat currencies and Gold won't shine until the world figures out that the ultimate backer of the ultimate currency is untrustworthy.  When that happens look out.  But it happens slowly.

There are other things working against gold.  The velocity of money is very slow now so no one sees how much the dollar has been diluted reciently.  Also, as GG states, paper golf vehicles give many gold investors a false sense that they are fully invested when actually GLD is probably best compared to a fractional reserve bank of the 1930s.

Thu, 01/21/2010 - 10:51 | Link to Comment Gordon_Gekko
Gordon_Gekko's picture

This dollar rally is bullshit. The dollar has barely budged against certain Asian currencies.

Thu, 01/21/2010 - 10:20 | Link to Comment Anonymous
Thu, 01/21/2010 - 10:13 | Link to Comment Anonymous
Thu, 01/21/2010 - 12:09 | Link to Comment trav7777
trav7777's picture

It's all in GLD's prospectus.

They have beneficial ownership of that many ounces.  But, their ownership is a paper claim on physical ostensibly somewhere else.  If GLD and the other ETFs *really* did have their own physical possession of THAT MUCH GOLD, seriously, a larger stash than most countries, we would know precisely where their warehouse was; it'd look like Fort Knox.

If that were the case, hell, probably get robbed or somethin

Thu, 01/21/2010 - 10:34 | Link to Comment Gordon_Gekko
Gordon_Gekko's picture

Most likely $42.7 billion of HOT AIR. Another Madoff in the making. I have no sympathy for GLD buyers. They deserve what's coming their way.

Thu, 01/21/2010 - 13:10 | Link to Comment DoChenRollingBearing
DoChenRollingBearing's picture

Physical possesion is the way to go, as GG, the Chumba, and others of us have been preaching.

Dow now down 200.

I am NOT Chumbawamba, but I would spring for a beer with him!

Thu, 01/21/2010 - 10:12 | Link to Comment SWRichmond
SWRichmond's picture

I agree there's a shortage of physical on the horizon.  I disagree on how to play it.  I wouldn't touch GLD with someone else's money, having looked closely at their prospectus and found it lacking in the areas of accountability, auditability, and others.  I wouldn't touch Barrick, either; given their history as a confessed agent of the central banks, and their lack of business acumen in having, until recently, one of the largest short gold hedges on the planet, I consider giving money to them akin to investing with the devil himself.

I find your choices surprising.  Why not CEF, GTU, NEM?

Thu, 01/21/2010 - 10:10 | Link to Comment Leo Kolivakis
Leo Kolivakis's picture

Gold sucks, the more I see the hysteria, the more I am convinced it will go down in 2010.

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