• Knave Dave
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    This past Thursday marked the one-year anniversary of the US stock market’s death when stocks saw their last high. Market bulls have spent a year looking like the walking dead. They’ve...

Guest Post: From $100 Million To $2.16 Billion In Under Ten Years - Proposing an Overnight Gold Fund

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Fri, 08/27/2010 - 09:09 | 547909 nhsadika
nhsadika's picture

This is unbelievable, thanks for the article.

Fri, 08/27/2010 - 09:21 | 547937 septicshock
septicshock's picture

This has been pointed out here on zero hedge before, not a new article premise.

Fri, 08/27/2010 - 09:27 | 547947 unwashedmass
unwashedmass's picture

start this baby up...i'll write the TV commercials for it. if our government is happy to turn a blind eye to JPM's machinations, i don't know why we shouldn't let the entire country in on it and we can all profit....

Fri, 08/27/2010 - 09:34 | 547960 Pladizow
Pladizow's picture

This is based on Adrian Douglas' from GATA and Market Force Analysis work.

First come the inovators, then the imitators, then the idiots.

Fri, 08/27/2010 - 13:53 | 548658 midtowng
midtowng's picture

But who would be dumb enough to be on the other side of this trade? The down-during-the-day-up-at-night price movement has been well-known for years.

Fri, 08/27/2010 - 09:14 | 547918 OpenEyes
OpenEyes's picture

I've been watching this spread since 2006 and had always assumed that the big international players were doing this already.

Fri, 08/27/2010 - 09:16 | 547920 tmosley
tmosley's picture

A very clear and concise argument pointing toward market manipulation.  Thanks.

The gold trolls won't understand it, though.

Fri, 08/27/2010 - 10:58 | 548183 Johnny Bravo
Johnny Bravo's picture

And yet, you continue to buy into the "manipulated" market.

What's the definition of insanity again?

Doing the same thing over and over and expecting different results?

If I "knew" something was manipulated, I would either:
1. take advantage of the manipulation
or
2. abstain from that market altogether

So why do you fight the trend, and then complain about it? 
(and pay an 8% premium to fight what you know to be true on top of all that!?)

Fri, 08/27/2010 - 11:39 | 548367 JP McManus
JP McManus's picture

People buying gold believe the manipulation will end, that's how they're taking advantage of it.

Delivered physical is not the same as spot.  Thus, the price difference.  If you believe it is, you'll make millions buying it at spot and delivering it at an 8% premium.

Fri, 08/27/2010 - 11:42 | 548376 Johnny Bravo
Johnny Bravo's picture

First of all, when has the manipulation EVER ended?

But now it's going to?  Hmmmm... yeah.... 

That's just speculation.  You have to take reality into account.

Nobody wants gold to go higher, except for retail investors and kooks.
Retail investors and kooks always lose in the end.

Fri, 08/27/2010 - 11:48 | 548389 JP McManus
JP McManus's picture

I didn't say manipulation has ever ended.  I said people that are buying gold believe that will.

Fri, 08/27/2010 - 12:25 | 548460 Hephasteus
Hephasteus's picture

Why believe the manipulation will end when you can force it.

Fri, 08/27/2010 - 12:50 | 548510 SWRichmond
SWRichmond's picture
  1. Gold is proven to be manipulated downwards
  2. Gold is proven to rise significantly anyway
  3. The conditions that make gold a good "investment" have not abated, they have worsened
  4. Obvious conclusion: buy and hold gold.

Even you should be able to understand that.

Fri, 08/27/2010 - 09:17 | 547925 Quintus
Quintus's picture

Trading costs would have a major impact on those illustrated returns.  You wouldn't achieve anything like that rate of return in the real world.  

 

Good job on highlighting the rather obvious manipulation that seems to be clear to everybody but the CFTC though.

Fri, 08/27/2010 - 09:39 | 547974 tmosley
tmosley's picture

That's why you have a fund do it.  Make two big trades each day.  It shouldn't cost that much.

Fri, 08/27/2010 - 10:51 | 548186 Johnny Bravo
Johnny Bravo's picture

What do you need a fund for?  You can make the trades on your own with GLD, which is "gold" or by using PHYS.

Why pay fees to a fund?

Fri, 08/27/2010 - 11:47 | 548388 JP McManus
JP McManus's picture

London AM Fix is 10:30 AM GMT.  I've never tried trading GLD or PHYS at that time, but I'd guess it would be more difficult.

Fri, 08/27/2010 - 09:21 | 547926 scriabinop23
scriabinop23's picture

Believing that some form of efficient markets does exist,  I'd like to see this strategy implemented on substantial capital.  IF there were actually manipulation as many say, I'd bet this would force market behavior to change. (imagine $5-10B of gold being bought and sold every day like this)

But in the end, the performance would likely be abyssmal now that the public caught on to it.

Not to mention slippage and trading commissions undermining the whole strategy a bit. (how deep is the gold market, really?  Can $10B of gold be bought in 5 minutes without whipsawing the price 10%?)

Then imagine how everyone would game this activity before and after the fixes...

 

Fri, 08/27/2010 - 09:18 | 547929 Missing_Link
Missing_Link's picture

I'm gonna test this in TradeStation ASAP.

Fri, 08/27/2010 - 09:18 | 547930 idea_hamster
idea_hamster's picture

Of course, if you call the bottom perfectly, you're bound to make money.

The better question is what the return would be for the years 1991-2000.  Just holding the Au during that period would have led to a brutal loss.  But what would the effect be if you had stayed out of the London hours?  Still up?  Down less?

The past ten years have been great for gold, but trading ideas show their pedigree during times of adversity.

Fri, 08/27/2010 - 09:22 | 547938 mephisto
mephisto's picture

Thats the point. For a short gold trade these have been years of adversity, and the article finds a profitable strategy despite the overall market move.

Fri, 08/27/2010 - 09:19 | 547934 mephisto
mephisto's picture

The original article by Adrian Douglas was so good it's worth repeating.

I did the maths, these intraday divergences are huge, easily large enough to be statistically significant. I have had the trade on since I read the first piece. Its real, there's money on the floor to be picked up. So pick it up.

Fri, 08/27/2010 - 09:28 | 547941 Sudden Debt
Sudden Debt's picture

Now where did I put that goddamn Timemachine!

 

memo to myself: short the market in 2007 with the proceeds en buy the cheapest puts (Banks, automotive, shipping, oil) and take over the world.

Fri, 08/27/2010 - 09:27 | 547942 Quintus
Quintus's picture

The LBMA provides historical data on the AM and PM fixings here.

http://lbma.org.uk/pages/index.cfm?page_id=53&title=gold_fixings&show=20...

Using their data, the price of Gold increased from $1,113 on 4-Jan-10(AM) to $1,237 on 26-Aug-10 (PM) i.e. a gain of $124 for the year to date.

However, if you sum the cumulative movement between the AM and PM fix, you arrive at afigure of -$84.25

So gold increased $208.25 outside London Fix hours and declined $84.25 during London hours.

That's normal, right?

 

Fri, 08/27/2010 - 09:27 | 547943 zeroqpon
zeroqpon's picture

Would be interested to see this strategy tested forward in a virtual portfolio for the next 30 days to get a better sense of daily performance. Would also be keen to learn if Silver is subject to this same phenomenon.   

Fri, 08/27/2010 - 09:28 | 547944 Thomas
Thomas's picture

The issue of volume is real: How do they cover their shorts without creating increasingly brutal last-minute short squeezes?

Fri, 08/27/2010 - 09:34 | 547963 Sudden Debt
Sudden Debt's picture

That one is easy: Fairydust!

Fri, 08/27/2010 - 09:41 | 547978 tmosley
tmosley's picture

They likely count GLD longs as their own.

Which is why you don't want to own GLD or SLV.

Fri, 08/27/2010 - 10:53 | 548199 Johnny Bravo
Johnny Bravo's picture

That's what the rise in price "after hours" is.  It's all just one huge short squeeze.

That's the only thing keeping gold up, is the need to cover shorts.

BTW, didn't I say yesterday that the market would be up today?
And people laughed at me.

LOL at them.

Fri, 08/27/2010 - 11:06 | 548245 Dismal Scientist
Dismal Scientist's picture

Oh dear. People laugh at you because you only ever crow about calling a market up, and do not seem to acknowledge there are plenty of good reasons for it to go down (even if you make money on the short side). When it goes down, you just run away, and then claim you were profitable post event. Its not credible, is it ?

Fri, 08/27/2010 - 11:46 | 548386 Johnny Bravo
Johnny Bravo's picture

I know that there are plenty of reasons for it to go down.  And yet, it DIDN'T?

Why?  Because my reasons for it going up today were more important than your reasons why it would go down.

It doesn't matter what the reason is.  It only matters who is right.

You can look at my posts last night where I said it would be up today.  I'm not making anything up.

You can look at my posts before the last time gold when down, when it was at 1260.  I called it.  Everybody else was saying it'd go to even higher highs.

I called the uptrend from gold at 1160.  The posts are everywhere for you to see.
If you don't believe me, find them.

You can't deny that I was on last night saying we'd be up today.

I make my calls BEFORE they happen.  Everybody else can't stand that.  They just hold and pray.
You'd figure that they'd make money or something... 

Fri, 08/27/2010 - 12:18 | 548440 Dismal Scientist
Dismal Scientist's picture

OK, lets make a deal, JB. If you read my comment properly you'll understand why I am proposing the following: next time you think the market is going to go DOWN, say when that is. For equities, I mean, lets leave gold out of this. We'll listen. What pisses people off is the 'I told you so' for bull moves only.

In addition, note that I did not say in any posts what I thought the market would do 'today'. I'm not an intraday punter. What I will say, is I am currently long selected equities, commodities, cash and protection. No bonds. And I am sure as I can be that I will either sell those specific equities in the near future, or buy more downside protection.

Got it ?

Fri, 08/27/2010 - 13:24 | 548589 thesapein
thesapein's picture

It's like trying to have a conversation with someone who talks in their sleep.

Fri, 08/27/2010 - 13:23 | 548585 thesapein
thesapein's picture

nah, nah, i talk like a twelve year old, i was right, you were wrong, it doesn't matter why, nah, nah, who cares if my guesses are wrong half the time, i don't remember those times, nah, nah, nothing I say makes sense, my meds are better than yours, nah, nah, gold's not worth the metal it's printed on, nah, nah, nah

Fri, 08/27/2010 - 09:41 | 547977 globozart
globozart's picture

 

Since it´s all about giving... For all of you, haters of the mainstream, you might enjoy this.
I especially like the "gold-digger" part.

http://www.dailymotion.com/video/xeidub_cee-lo-green-fuck-you_music

 

 

Fri, 08/27/2010 - 09:41 | 547979 Yikes
Yikes's picture

I've read a lot of these "Gold market is fixed and/or rigged" articles and couldn't quite dive in.  This analysis has me testing the spring board. 

 

The question being what vehicle would be used to profit from it and how much would trading costs eat into the returns.  Would you use Futures or could you use GLD ETFs or something else?

Fri, 08/27/2010 - 11:19 | 548293 truont
truont's picture

Someone needs to make a fund based on "long overnight/short intraday" gold.

But even that would not rouse suspicion of gold shenanigans at the SEC or CFTC....

Fri, 08/27/2010 - 10:01 | 548022 deliciousirony
deliciousirony's picture

I wonder if this can be done with 2xshort and 2x long gold ETFs...

 

 

Fri, 08/27/2010 - 10:05 | 548033 BrianOFlanagan
BrianOFlanagan's picture

Finally, we hear from someone who isn't just whining about manipulation, but is going to try to take advantage of it. Bravo! However, my sense is when you finally do start trading it, the anomaly will disappear or reverse. Markets are funny that way. But still, a great wakeup call to the conspiracy crowd, stop bitching and start making some money off the evil manipulators.

Fri, 08/27/2010 - 13:37 | 548624 thesapein
thesapein's picture

Uhm, I kind of thought that most people who were aware of the manipulation were already taking advantage of the take downs and low rates and such. The whining is more typical of the just waking up crowd who are just starting to see the problems and not yet on to solutions. Gold bugs have already found a pretty darn good solution so what would they be whining about? 

Fri, 08/27/2010 - 10:24 | 548043 FranSix
FranSix's picture

Some of the video excerpts from BNN on gold related issues.  Gold was 'in the news' this week, so much discussion:

Here's..... Jahnny Bravo!!

http://watch.bnn.ca/trading-day/august-2010/trading-day-august-26-2010/#...

Joe Foster from Van Eck discusses gold miners:

http://watch.bnn.ca/trading-day/august-2010/trading-day-august-26-2010/#...

Excitement over gold discovery in the Yukon(Kinross already bought out Underworld Resources this year, which had the prominent land position.  Kaminak is adjacent, so the speculation is that Kinross will be obliged to buy out the rest of the land position to fend off competitors.)

http://watch.bnn.ca/commodities/august-2010/commodities-august-24-2010/#...

Todd Horowitz from Adrian Mesh:

http://watch.bnn.ca/the-close/august-2010/the-close-august-25-2010/#clip...

I would say that gold pricing above ~$1233, and the fact it trades in moves analogous to previous years, indicates that a major rally may be in store:

http://stockcharts.com/h-sc/ui?s=$GOLD&p=W&b=5&g=0&id=p22191914136&a=156853006&listNum=2

Jason Toussaint, World Gold Council:

Part 1:

http://watch.bnn.ca/commodities/august-2010/commodities-august-26-2010/#...

Part 2:

http://watch.bnn.ca/commodities/august-2010/commodities-august-26-2010/#...

Bear in mind that very few gold miners are making advances against the gold price, save for the most speculative plays. (Red Back mining, Osisko)  We are in a major generational bear market, so bullish prognostications on gold miners may be valid, but from the point of view of inflation-adjusted returns, may be falling behind much like everything out there.

You would have to get in at the extreme bottom, as it was in 2000, and sell a portion to cover costs, after which you sell the rest at the extreme top, or tender your shares on a buyout.  

Companies buying out junior miners have not been much to the advantage of holders of junior mining companies, since you are offered shares, not cash.  Most buyouts this year have been at major discount to fair value based on 10% of the Net Asset Value of inferred resources.

Some of the buyouts this year are Agnico Eagle buying out Comaplex, they had bought out Cumberland previously. (Both in Nunavut)  Kinross buying out Underworld, and Osisko buying out Brett Resources.  Some buyouts of juniors that have taken place during the boom were Newmont buying out a property in Nunavut, (name escapes me now)  and Goldcorp buying Golden Eagle in the Red Lake district. 

-F6

Fri, 08/27/2010 - 10:56 | 548209 Johnny Bravo
Johnny Bravo's picture

BNN?  Why would I go on BNN?

Sounds like a wannabe CNN.

Now they have BNN hocking gold to gold bugs.

Yeah, I can't wait to watch those MFL games this weekend.

LOL at fake news outlets.

Fri, 08/27/2010 - 11:42 | 548374 ZEITGEIST
ZEITGEIST's picture

Johhny..you should go on CLN...Clown Network..you would fit in perfectly...and oh ya..don't kid yourself..we are all laughing at you....Clown Boy...

Fri, 08/27/2010 - 11:50 | 548392 Johnny Bravo
Johnny Bravo's picture

That's funny, because I laugh at you too.

Every call that is made on this site (except mine, and maybe Leo's) are consistently wrong.

S&P to 450???  Please.

No wonder people don't like Leo and I.  We're actually right.  We've already broken the cardinal rule here.
The first rule of zero hedge is.... always be bearish.  Even if the market is at generational lows.

I'll admit, I got my ass handed to me long ago by following the advice on this blog.  Never again.

Now, I use it as a contrarian indicator.

Whatever people like you say it will do, it will do the opposite.

Fri, 08/27/2010 - 12:13 | 548436 ZEITGEIST
ZEITGEIST's picture

yes..like your call of gold top at 1220..due to your napkin fabrizio wave patterns..you might just as well throw down some bones moron...it will be dependant on news coming in near term future...look for another European crisis to hit..bigger and more volatile than the last..look for states to start buckling like our unattended bridges and roads...look for consumers to pull back due to more deleveraging...toss in sovereign debt..and possibly war..and certain civil unrest..and dont forget money printing..and it is coming...your 1220 will be the new 250...you have no clue what you are talking about..that is why we find you funny..to laugh at I mean..now go back into hiding like last 2 weeks..we all enjoyed your field trip to the circus...One last question..what size are your clown shoes ????

Fri, 08/27/2010 - 16:29 | 549103 FranSix
FranSix's picture

JB may be right about being too true to the bearish impulse, because inflationary and speculative bubbles have been riding up and blowing out since yr. 2000.  Just look at the results of BEARX.  The Prudent Bear fund would have entirely missed the runups in oil, copper, nickel, uranium, etc. etc., but those who speculated in these items are now in the downtrend.

But I think that speculation in equities, corporate bonds, commodities, currencies is probably going to get the bear treatment in the next downdraft.

But who can you trust when nobody adjusts for inflation?

The TSX topped out at 14,000 in 2007, but measured against gold it topped out long ago, in 2000:

http://stockcharts.com/h-sc/ui?s=$TSX:$GOLD&p=M&st=1990-01-01&en=(today)&id=p86904071605&a=206968740&listNum=2

How do you call a market like that?  How do you 'do' that trade?

And considering the data favouring another downdraft, would it not be prudent to avoid any speculation whatsoever and not play the mining stocks, since they too are in a bear market since 1997 vs. Gold?

Fri, 08/27/2010 - 10:09 | 548052 crzyhun
crzyhun's picture

FUBAR!!

Fri, 08/27/2010 - 10:11 | 548057 Riley Wilde
Riley Wilde's picture

I had some comments on the original article here:

http://www.zerohedge.com/article/guest-post-gold-market-not-%E2%80%9Cfix...

The analysis does not consider transaction costs, intra-day or overnight financing/carrying costs, and the extent to which the "fix" is even an easily tradable price.

The last point I am most curious about... would a bullion bank even let you deal at the AM and PM fixes in sufficient size and frequency like that?

Fri, 08/27/2010 - 10:57 | 548106 strannick
strannick's picture

 

Whoever thought statistics could be so revolutionary.

Its like the salve of a morning beer and clamato to economists drunken flailings

Yo Adrian..

Go Adrian!!

Fri, 08/27/2010 - 11:44 | 548381 Silversinner
Silversinner's picture

Don't trade this one,just buying the real stuff.Just keep on buying last few years.

Will not put my hard earned money in the paper ponzi sceme.Just hold the stuff

and take a add-on when the price drops Take a ride on this bull,but do not risk

being shaken off.For starters silver is just great,because of the extreme low

price entry point;20 buck and your in for a full ounce!!

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