Exchange Traded Fund
“This could turn into a very violent wake-up call for [screen-traded gold]. People talk about ‘fiat currencies’, but we also have ‘fiat gold.’ Volatility is too cheap right now.”
Dear World Gold Council Executives;
As you very well know, the business environment for gold producers has been extremely challenging over the past few years. While demand for physical gold remains extremely strong, prices on the COMEX have fallen precipitously. This contradictory situation is the single most important obstacle to a healthy gold mining industry.
In my opinion, the massive imbalance between supply and demand is not reflected in prices because available statistics are misleading...
Overnight global markets have gone decidedly nowhere, in expectation of the long-overdue September payroll report, and seemingly oblivious of the Goldman pre-announcement all clear that "Any positive number will be discounted because it came before the DC theatrics and if it’s weak it confirms that tapering should be put off longer." In other words, both the September, and accompanying July and August revisions (recall it was the revisions where the August NFP number ended the FOMC's taper talk) are meaningless because everything will be spun bullish. For those who do care - mostly headline reacting HFT algos - here is the summary: consensus is for 180k (unemployment rate unchanged at 7.3%). Note that the survey period for today’s payrolls report was prior to the shutdown which started on October 1st. As for how the amusingly named "market" will react to the news: see Goldman quote above, or better yet: just call the NYFed trading desk.
There can be little doubt from recent actions that China is preparing herself for the demise of the dollar, at least as the world’s reserve currency. Central to insuring herself and her citizens against this outcome is gold. The West selling its stocks of gold has become the biggest strategic gamble in financial history. We are committing ourselves entirely to fiat currencies, which our central banks are now having to issue in accelerating quantities. In the process China and Russia have been handed ultimate economic power on a plate.
- FHFA Is Said to Seek at Least $6 Billion From BofA for MBS Sales (BBG)
- Record Pact Is on the Table, But J.P. Morgan Faces Fight (WSJ)
- Magnetar Goes Long Ohio Town While Shorting Its Tax Base (BBG)
- Mini-Wall Street' Rises in Hamptons (WSJ)
- Obama to call healthcare website glitches 'unacceptable' as fix sought (Reuters)
- Starbucks Charges Higher Prices in China, State Media Says (WSJ)
- Cruz Is Unapologetic as Republicans Criticize Shutdown (BBG)
- Berlusconi struggles to keep party united after revolt (Reuters)
- SAC Defections Accelerate as Cohen Approaches Settlement (BBG)
But I never thought it wise to sell it, because for central banks this is a reserve of safety, it’s viewed by the country as such. In the case of non-dollar countries it gives you a value-protection against fluctuations against the dollar, so there are several reasons, risk diversification and so on.
"Gold is acting crappy. It looks awful on the charts and it's just not doing what it should be doing. Gold looks weak. Thank goodness I have owned it in terms of Yen. It saved me from losing 25% instead of only down about 7%. That's still an eggregious loss. Gold still looks awful. One has to suspect it is probably going to go lower again. I like steel a whole lot more than i like gold."
We'll give you a hint, says Nanex: fantaseconds. Fantaseconds, everywhere. This is how High Frequency Trading (HFT) practically minted money during the financial crisis. With no regulators in sight, HFT robbed investors and other traders blind. With very little effort, Nanex has created numerous charts to illustrate the absurdity that markets functioned well during the financial meltdown. Many of the short term oscillations shown in these charts were created by HFT algos to induce a lag and create latency arbitrage opportunities. And yet the regulators could not spot a single one. Even after spending millions on MIDAS.
The USD is bid; Treasury Bonds are being abandoned; the 10/24/13 Bill remains lost though; but stocks are entering escape velocity. S&P 500 has screamed 15 points higher (no surprise given Nanex noted that S&P 500 futures had the lowest liquidity of the year for this time of day prior to the rumor) and the Russell 2000 has broken back to new all-time highs (why not). Of course JPY-crosses are largely responsible for the knee-jerk move and we wait to see if this becomes a sell the news moment (or for Boehner's denial)... Commodities are not moving much for now.
The documentary will air Novemeber 4th at Battle of The Quants in Shanghai and from there will hopefully make its way around the world
There is a reason why John Taylor of FX Concepts, founded in 1981 and which once upon a time was the world's largest FX hedge fund, has kept a very quiet profile lately despite his often bombastic prognostications in 2011 and 2012: the firm may be on the verge of shut down following a recent surge in redemptions resulting from woeful performance in the past three years. FX Week reports that AUM at FX Concepts "have continued to fall and the fund's chief strategist confirms the board's ideas haven't worked so far." It adds that the hedge fund is in "dangerous territory after the departure of several major clients and falling assets under management, prompting the firm's board to rethink its strategy, officials have confirmed." As a result of a surge in redemptions, assets under management have declined from a peak of $14.2 billion in 2007 to less than $1 billion this year, having been at $4.5 billion in early 2012.
Just two weeks ago we explained how when there is only one driving factor for market performance and "too-many coat-tail clinging asset managers chasing too few real alpha opportunities" then problems can arise. Critically, we showed the correlation between the S&P 500 and hedge fund returns has never been higher and is approaching 1. So it is refreshing that the Treasury Department agrees in a recent report that this "herding into popular assets" by asset managers could pose a threat to the US financial system.
The primary trend of the AUD is down. Bernanke has provided us the opportunity to sell the rally and profit from a primary trend continuation.
Goldman Sachs is once again predicting that gold will fall, setting a new near-term target of $1,050. Never mind the schizophrenic gene that would be required to follow the constantly fluctuating predictions of all these big banks. Sure, the too-big-to-fails can move markets - but they say things that are good for them, not us. As an example, while Goldman Sachs was telling clients and the public to sell gold in the second quarter, they bought 3.7 million shares of GLD and became the ETF's 7th largest holder. When we visited China, guess who no one was talking about? Goldman Sachs. Since January 1, gold ETF holdings have fallen by roughly a quarter (26%, according to GFMS). But Chinese housewives aren't refraining from buying and certainly aren’t selling...
The FOMC shocked markets by deciding not to slow its large-scale asset purchase program, after all the signals it had sent out in previous months that it would do so. While increasing policy risk, JPMorgan notes, this puts the asset-reflation trades back on the table. In their view, the main driver of gold’s performance over the past five years has been QE. As QE continued and inflation expectations remained subdued, the demand for an inflation hedge subsided, ETF positions were unwound and gold prices fell. However, JPM now believes, as a result of the Fed's volte-face on tapering, uncertainty about future inflation may pick up and suggest a long position in gold. Of course, the question is - are they buying or is this a last ditch effort to drain what little remaining gold they have in their vault to their hapless clients?