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The Potential Exists For an Epic Short Squeeze in Physical Gold
By: Chris Tell at http://capitalistexploits.at/
I recall a long time ago when I was easily excited by the unqualified love of young inebriated women, hedonistic experiences, fast cars, guns and seemingly unusual setups in financial markets, which promised fortunes if traded correctly.
I now find that I just enjoy a day with my kids and later a decent glass of red. Ah, simpler times! I've also realised that "unusual" setups in financial markets typically turn into nothing more than a loss of my capital. Betting on outcomes which seem "so damned obvious" isn't as easy as one would think. Probabilities, as I discussed last week, are a key factor, as is risk/reward.
This is of course as it should be. The markets are there to extract money from inexperienced, gullible "traders". OK, some are experienced and just careless, but many are newly minted dreamers, set out into the world by some seminar "guru" who convinced them they could day trade their life savings into a small fortune. You know what they say about small fortunes, right? Financial Darwinism!
Given this backdrop, I had a recent phone conversation with our friend Tres Knippa. For those that don't know him, Tres is a broker and trader on the floor of the Chicago Mercantile Exchange (CME). Clearly not a Johnny-come-lately. Tres shared with me some numbers.
By the way, paying attention to "numbers" and trading them intelligently is far superior to chasing unqualified love from long-legged women. Trading intelligently has been known to pay for supercars and penthouses, which will inevitably attract said long-legged women, so fear not!
The numbers Tres shared with me were:
- -89,756.78 - This number represents the overnight movement of registered gold OUT of inventory at Brink's, and INTO Eligible Inventory at J.P. Morgan.
- 370,137 - This is the number of ounces of Registered Gold for delivery.
- 300,000 - This is the number of ounces, represented in gold contracts, that any one entity can own (3,000 contracts).
- 81% - The percentage of supply at the Comex which would be exhausted should just ONE entity put on a "Limit Long" position, AND demand delivery.
These should be very scary numbers for the folks running the Comex, but even scarier numbers for anyone not holding physical gold and trading paper!
Tres also shared the chart below with me. This is a graphical representation of the amount of paper gold versus the Registered Gold available for delivery:
Zerohedge recently posted an excerpt from a video Tres did here. Now, for those who are paying attention, the similarities between this little setup and an extended game of Jenga cannot be dismissed out of hand!
Zerohedge also posted a neat little story about the German's only having recovered a paltry 5 Tons of gold from the US, after a year! You can read all about it here. In short they have repatriated just 37 tons of the 674 tons they have promised to repatriate. At least the Comex may get forewarning of any demand for delivery from the NSA, who is likely still monitoring Sausage Lady's iPhone. Regardless, it's unclear to me what they would do about it should that demand for delivery actually come down the wire.
Over 2 years ago when we put together our Japan report I mentioned to Tres that I preferred to go long Gold, short Yen. At that time his preferred trade was centered around the JGB options market, and to be long the USD short the Yen. Looking back he was right and I was wrong. The USD has indeed performed better, and likely will continue to outperform in 2014. Although up to this point it's been more a factor of a breather in the gold bull market than USD strength.
I'm a gold bull, not a gold bug. I do believe that the long term trend for gold is bullish. This current setup clearly has the potential for some fireworks. Maybe nothing happens (doubtful), but the risk/reward setup is rather favourable from where I sit. Heads I win, tails I win.
Whatever you choose to do with the above information, I encourage readers to never ever confuse "trading for profit" with investing. I'm happy to trade futures contracts, buy gold in the FX spot markets - essentially trade paper in one form or another, but I would NEVER let that obfuscate the fact that I need to hold PHYSICAL GOLD as protection. Timing a profitable trade is like passing gas, it is largely a matter of knowing when it is inappropriate, and acting accordingly!
Grant Williams, the prolific editor of Things That Make You Go Hmmm... said it perfectly in his latest missive:
"Gold is a manipulated market. Period."2013 was the year that manipulation finally began to unravel."2014? Well now, THIS could be the year that true price discovery begins in the gold market. If that turns out to be the case, it will be driven by a scramble to perfect ownership of physical gold; and to do that you will be forced to pay a lot more than $1247/oz.Count on it."
Think about this as a parting thought. Would the Comex, if under pressure for delivery, ever void your positions in order to "stabilise" the market? Or, would that just not be palatable in the Land of the Free? As Grant said above, "Count on it."
For the traders out there, Tres shared with me another anomaly in the gold markets which he's been trading successfully for the last couple of months. I'm in the process of translating this from "trader speak" into English, and it will be sent out to members of our currently complimentary Trade Alert service shortly. You can get access to this and more by dropping your email here.
- Chris
"I firmly believe that in the years to come, when we look back at the great game being played in gold, we will pinpoint January 16, 2013, as the day when it all began to unravel.
"That day, the day the Bundesbank blinked and demanded its bullion, will be shown to be the beginning of the end of the gold price suppression scheme by the world's central banks; and then gold will go on to trade much, much higher." - Grant Williams
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Thank you.
I can also see a scenario where the government allows ETFs to continue trading while shutting the door on physical metals. Why? It's because games can be played with ETF holdings. If that happens, a person could make a mint in fiat which would at least allow the purchase of lots of stuff until the shortages, etc. eventually set in. No different than owning Apple stock or any other kind of security and taking trading profits to buy food, ammo, hookers, college tuition, etc., etc. The point I'm making is the physical metals could very well be confiscated, taxed to hell, etc. while the government let the party play out in the ETFs until they inevitably thought up something to kill that party too.
I'm pretty sure there's more cash to confiscate than gold, that's the point of having cash controlled by a single controller, so I'm pretty sure that will be hit harder first & not just GLD ETF - damn near everything traded in cash-denomination.
As for physical, I think it's already past the hour - it's the time you ought to be living where that confiscation does not happen. Not USA, not Argentina, not the UK, certainly not any nation embroiled in sanctions with the USSA mafia... and so on.
All it would take is for Germany to speed up the repatriation and call the delay for what it is.
from 1934 to 1971 gold was worth $35/toz
from 1834 to 1934 gold was $20.67toz
Expect China to peg at some fixed renimbi amount.
No further gold market needed,
In the last many years has there been a short squeeze on anything? Even with huge naked short positions?
I lost my ass believing that short covering would occur, never once did it occur.
Stack for the future, not to make money.
the peg is already set - will be revealed in time....
If we get a deflationary "scare" and precious sells off hard, you fokkers had better be tuned up and ready to race me to the metal. I have a dump truck with a jet engine ready to go.
wow maybe people will camp out at the Coin stores overnight, just like Black Friday... /s
You mean like this?
http://www.zerohedge.com/news/2013-06-14/stunning-images-china-ten-thous...
You're on!
Here's a follow-up question:
The above scenario seems to imply a run on physical gold, but also a collapse in confidence toward any paper gold instrument.
Wouldn't the logical result be a FALL in the value of any paper gold products while physical gold went the other direction?
That could be REAL interesting to watch.
The powers that be will try like hell to destroy the paper gold market.
Because it is paper makes the manipulation all the easier.
What I don't really get is after all the shit that has been uncovered, governments still trust each other over their gold holdings.
Exactly. If the spot paper price goes up then the game is on for more confidence in paper gold. If the spot price drops dramatically then there is a loss of confidence in paper and physical will diasappear and then a terrible premium for physical will begin to emerge. Conclusion: Keep up the manipulation suckers because we will get to true price discovery sooner. Meanwhile gold bugs get to stack at a discount.
The price of physical will collapse with the price of paper. Physical will go back in the vaults and won't be available at that price. Then the market will bifucrate and physical gold will take off. There will be a time one need to stomach the drop and not liquidate physcial asset.
Banks will have to buy the GLD to hide the disconnect, oh wait...they are.
The price of physical will collapse with the price of paper. Physical will go back in the vaults and won't be available at that price. Then the market will bifucrate and physical gold will take off. There will be a time one need to stomach the drop and not liquidate physcial asset.
Nope, much more like the 2 markets will separate definitively.
This process already began when the Singapore phyz. gold market opened.
So if you could buy Phys in Singapore at the $2500 some say is the right price, you would walk away from the current price?
Too low, but buy now, later will bee expensive.
TPTB will never allow gold to rise.
The worldwide markets will simply stop trading it.
China will peg the renimbi to some fixed weight of gold.
In the US/Europe the price discovery mechanism will become what your neighbor will trade you for it.
The worldwide(black-underground) markets will never stop trading it.
I've got to trade my email address for more reasons why I should buy gold and from whom. Sounds like a great deal. MQS@spamheaven.com
1. Comex contracts can be settled in dollars
2. A margin call will increase the gold supply
A commodity futures exchange that can't deliver the commodity is what, exactly?
this -> http://www.crapscasinos.org/vegas/casinos/bellagio/images/night.jpg
an ETF
The exchange hasn't been about exchanging commodities for a while.
A fraud and ponzi scheme?
a National Security Risk
Don't delivery contracts that get settled in cash carry a premium? Why wouldn't a few deep-pocketed entities get together and just max-out their positions for delivery and collect the cash premium as a guarenteed profit?
they would get squashed by unlimited cash - guess who...
if you had 500 mil, ya want to get ass raped by whales that own the ocean?
Been trading and watching markets for awhile now. I must admit gold feels different now. Cant put my finger on it. The failure of the fed to deliver german gold is in my opinion a game changer
I here you, but remember germany is in the club too. i doubt they have the little guys back covered. remember dr. desel doucher
yes they want their phyzz. but, when the shit gets real, calls will be made, sanctioned by the nsa.
i want to believe things will be unmanipulated, but not seeing anything resembling a market for quite some time.
non-believer saying i'll believe it when i see it...
Remeber also that, having come through a hyperinflation, ordinary German people acquire Gold as secure Money and are much closer to Gold as money than elsewhere.
Also, Germany is not actually, "In the Club" to the same extent and certainly not to the extent that they would not put their own interests (Please can we have OUR Gold back) versus cooperating in a further extension of the ponzi by the Fed.
I think you underestimate the will of the German people. When news that their gold isn't arriving on schedule hits the wires (and according to some, it already has), they will get more than a little uppity and Bubba will be forced to take a stronger not a weaker position on repatriation.
I spend a lot of time in Germany and I can tell you that the people over there are not in the same 'Dancing with the Stars' trance as Americans.
Also, their political system is dependent upon myriad coalitions... a fracture here and a defection there and Sausage Lady is toast.
I'm sure there is a german word for "will of the german people." And is probably around 40 letters long.
I agree - if they think they've managed to "slip that one by" anybody - they are completley mistaken.
Hello, it's the neophyte again.
I'll agree that it appears that there is much potential for a short squeeze in physical gold. Hell, I could even see some well-heeled parties actually igniting one in order to reap some decent profits.
That being said, I'm really interested in what happens next.
While the stocks of registered gold are down, the inventory of eligible gold seems healthy enough. Assuming the holders of eligible gold don't mind making a buck, how quickly can stocks be moved from the eligible side of the ledger to the registered side?
If things get real interesting, what's keeping the U.S. Treasury (or other sovereign powers) from "lending" some of there physical stocks to COMEX until things settle down? It's not like the Feds have been reticent to intercede in markets when they go an unwelcome direction. Yes, I know that some people think that the U.S. has already sold off all most of it's gold, but I suspect there's enough laying around to stop a run on the COMEX bank, so to speak.
So it seems there could be a brief, though dramatic, run up in gold, but there also seems to be a few mechanisms to rein it right back in (though at a higher stabilized price, mind you).
Comments?
The US providing gold to manipulate the price could be coming to an end. That is because most of the gold is already gone, leased to the bullion banks and sold to China.
I think you underestimate the domino effect with all this. People simply demand physical and it acts like a Giffen good as people chase down the physical to get it in possession.
That's why I definitely see potential for Fed intervention, just like we've seen so many times in the past. All you need is for Treasury Secretary Jacob Lew to call a press conference and announce that the U.S. Treasury will throw open the vaults and make sure that anyone who wants their gold, can have their gold. After all, the official U.S. position seems to be that gold is an archaic relic that only gets its value from fear in the market. Just the PR aspect should throw some oil on the water.
Gold spikes.... then gold comes back down. A lucky few make a boatload of money, and then we're on to the next crisis.
castiel, it's unlikely that the us has much gold left at all.
i just watched a video interview last night of paul craig roberts (asst secretary of treasury during the reagan administration) admitting that the us has no gold, as it's unable to fulfill the repatriation requests of germany:
http://www.youtube.com/watch?v=p0rGaWcRiNo
"If you don't have anything to hide, you've got nothing to fear!" Guess WHO hasn't audited Ft. Knox since 1953? (i.e., someone's got something to hide!)
If the Fed had the gold sitting in their vault the Germans would have gotten their gold on Jan 17 2013. They don't have the gold so opening the vaults and letting you walk up and buy some gold is out of the question.
"The Fed will throw open their vaults".... I think their vaults are empty.
I doubt it Castiel123. I don't believe that the Treasury has the gold it says it has on it's books. When the big short squeeze begins, everyone will know how the gov sold out the citizens of this country. Now do you know why DHS bought enough bullets to kill every man, woman and child in this country 3 times? In reality though, there are a lot more of us then there are of them. It'll be a war of attrition, and in the end, we will win. It boils down to a simple numbers game. DHS is way outnumbered and I don't think that they can shoot straight (have you taken a good look at the overweight fat fuks in the TSA at airports?) There are a lot more hunters with high powered rifles and high powered scopes to do the job easy.
overweight fat fuks in the TSA
high powered rifles and high powered scopes
Be still, my heart!
Hunters Comment.... I had to Shoot it, it looked like a Cow.. ( deer season 2012 )
Perhaps this is the future but I don't really think anybody wants a civil war
The system is extremely fragile, as all these bankers came from schools that taught them modern portfolio theory and BS about things like 'risk free rate' that is predicated on QE and foreigners importing inflation, and that gold is just this random asset, as opposed to what it really is, which is money. The group think is tremendous within this industry, and people in general have been dumbed down into thinking savings is bad and consumption drives an economy.
Someone somewhere ain't gonna get their gold and that will be the catalyst. They've been playing musical chairs with rehypothecations and lending but the music will stop eventually.
anectdotally, my co-worker said his dad wanted to add a couple of 2 oz perth mint lunars to his collection and is having trouble. Says fewer and fewer of the larger gold coins on the market.
Who can be buying all these expensive 2 oz perth mint coins?