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Why Has Gold Turned Into Paper?
One of the most amazing things that has happened in the global capital markets in the past month is that gold and silver have turned into equities. You know, those precious metals that are supposed to be a store of value and a safe haven during troubled times?
They have morphed overnight from hard assets into paper ones, with the barbarous relic nose diving $392 from $1,922, or 20%, in less than four weeks, while the white metal is off nearly $24, or 48% from its April $49.90 top.
It is clear what is happening here. The biggest hedged funds, like the one run by the subprime hero, John Paulson, have gotten into big trouble with ill-advised holdings in financials and are unloading everything else to meet margin calls and expected redemptions. What are their largest remaining profitable positions? Gold and silver.
It’s no good reminding you all that I warned this was going to happen in my piece “Gold: I Told You So” at http://www.madhedgefundtrader.com/september-27-2011-2.html . I was certain that once the “RISK OFF” trade hit, there would be no place to hide and everything would go down together.
If you’re not out now, the damage is already done. At least my Macro Millionaire followers managed to coin it on the downside with some well-timed positions in out of the money puts, which they have already covered profitably.
That’s why the price action has been like a flash fire in a movie theater, frying the gold bugs in the process. The good news in all of this is that a big part of the drop is behind us. The bad news is that we may have three more months of such liquidations before we reach the bottom. Note to Indian subscribers: Will more of you please get married and provide some end user support under the distressed yellow metal? We are in the midst of the fabled Indian wedding season after all.
For those who wish to participate in Macro Millionaire, my highly innovative and successful trade mentoring program, please email John Thomas directly at madhedgefundtrader@yahoo.com . Please put “Macro Millionaire” in the subject line, as we are getting buried in emails.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.
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Gold togo cups instead of styrofoam? How rad is that?
If you do a newsletter, I'll subscribe.
I love throwing gold coins into wishing wells and watching the traders get their Guccis wet fighting over them.
kumquat, you don't know squat.
You said it well friend. Gold's price is tied to its demand as jewellery. That equates to roughly $1000/oz or so. Anything beyond that has been the result of speculation.
Those who can, invest.
Those who can't, speculate and buy gold.
that's one of the most ridiculous explanation of gold's price I've heard on this site
Agreed.
It was as idiotic as stating that the price of corn is determined solely by the market demand for Cheetos.
yes, for God's sake everyone knows it's Fritos
LOL. Where do you folks come up this stuff. Ok, I'm a 'babe in the woods', explain it to me or shut up
you're calling window dressing and toys fundamentals.
greed, followed by fear, followed by more greed, these are the fundamentals of human history. and they have not changed. when the world is on fire, people will reach for water, not bits and bytes, to save them.
and until technology makes synthetic gold feasible, gold will remain more fireproof than paper.
but hey, after ten thousand years of history, I suppose one of these times might actually turn out to be different
Pay attention Rob. He's not saying gold has no value. He's saying that it isn't worth $1600/oz.
And I am saying that you suffer from terminal cranial-rectal impaction.
Under $1600/oz pal. AND FALLING.
GOLD DUST.
Go choke on your depreciating (and soon to fail) paper ex-presidents and plastic pseudo-money, troll asswipe.
You don't own gold because you think you'll literally be spending it at a diner one day. 200 years ago no one actually spent gold either. What a dumb ass. They spent paper redeemable for gold. In the future we will spend digital currency redeemable for gold.
No, tech. will not produce cheap gold. You clearly are not an engineer ( I am), nor have you followed the mining industry. Those like yourself who are technically illiterate think tech. is a magic that changes mathematics and human behavior permanently. It does not. The changes are only at the margins.
Educate yourself before posting again please.
Tech and the omnipresent transfer of currency makes gold completely obscelete.
I'm not suggesting it doesn't hold value, merely that the value today is outrageously out of whack. I have been screaming that premise here since it popped around $1800/oz.
But I thought there was going to be an iPhone app coming out soon that mines gold. . .
200 years ago people spent silver and copper coins. Gold was hoarded by the rich, and used only for very large purchases like a farm. The ordinary working person wouldn't see a gold coin in a year. Occasionally he might see a gold coin being spent by a rich person.
Paper bank notes were also seldom seen and were for large denominations. Don't forget 200 years ago a 5 pound note was actually worth 5 pounds of silver = 100 ounces = $3000 approximately in today's money.
I can't take this guy seriously, even he does pay $400,000/month rent.
MHFT is a purposeful disinformation specialist. When all the gold bubble talk was being spread, it was revealed that very few hedge funds had any significant physical gold, and were merely trading in paper. Now that the manipulation correction has occurred we are now to believe that 1) physical and paper are one and the same, and 2) in the highest demand period for Asian markets, gold's fundamentals as a safe haven will suddenly disappear.
I suggest that MHFT go back to bending over for the TBTFs and not bore us with this tripe.
MHFT is a purposeful disinformation specialist...
Yes, now why is he given a soapbox?
He has been bashing gold for as long as I can remember. So he finally was around for a takedown. Who cares? He is still a dipshit.
Perhaps another presentation of the Nadler Award is due here: a turd wrapped in gold-colored paper, mounted on a paper-mache Janus bust of Bernanke on the one side, Keynes on the other, with a skillfully-engraved plaque at the bottom reading "For Honorable Service in Slaying the Barbarous Relic".
made so much in the trade ,, my news letter is free for a year . no make that two,,
that is how long my trip ont my new yacht will take
Because the ticker at the bottom of the idiot box SAYS SO! TV says it so it must be true; just ask anyone! 99% of people in the world have no idea how gold trades, what it takes to mine it, how it ties to other markets, how prices are set, or who the real players in the Gold market are. 99% of the worlds people see a number behind the word "gold" on a stock ticker and think "ok, that's what it costs and that's that." They just accept it, like so many other manipulated parts of their lives.
If you're so damn successful, why don't you get a real email address, along with someone to answer them for you... instead of being "buried in email."
Putz.
If you've been sitting on a nice stash of physical gold for a year+ (or even since...early August) I fail to see how the events of the last few weeks would cause you to regret that.
By the way: GLD and futures contracts are paper and always have been.
Agreed
If you were sitting on physical you acquired by slowly purchasing rather than panic buying, you are still sitting on a profit. If you panicked bought, and are sitting on a loss, you must take responsibility for your mistake and recognize that the underlying reason for the purchase still exists. Thankfully, I have a profit, but if I didn't I'd still hold tight.
However, if you were trading paper gold without a stop, or moved your stops, you have to admit your mistake. Trading is trading, and that means rules. It is irrelevant what kind of paper you are trading, even if they call it gold.
Ha! No shit. As of today, I'm still up more than 100% in my Au position.
Ow - I've been so blow-torched... Any more "shelackings" like I've had over the past three years and I'll be able to retire!
What a crock - If I wasn't already all-in, I'd be backing up the truck once again.
PS Ag's looking like a buy again too. Might have to add to my Maple stack. . .
Yes, already all-in.
Hold tight to your PM's sir. I must report that my lead & brass holdings are doing well. My farm land is falling in price nicely (lower property taxes) ;-) and my "junk" silver was acquired at face value.
BTW: I understand that there are STILL some pre-1965 dimes out there in circulation. Look at your change before dumping.
I love how the international banks cooperate in the hammering of metals, then their shills talk about "everyone" selling to make up for losses in the paper world, blah blah blah.
Night owls can watch the magic, if they stay up through the night with Netdania charts running showing price and volume. At 3 AM silver had risen well above $31, only to tank between 3 and 3:30. Thanks, LBMA. Then about 8:30 (after Blythe had her morning glass of blood) the hammering continued.
It would be amazing to watch the metals climb without these parasites sucking it dry every time it shows signs of life.
Gold has turned into their worst nightmare, not paper. Just give them their billions, (QE3) and they'll let gold go up a couple bucks.
+1 Conax! Well observed. Cartel capers continue: Andy Hoffman runs it down in detail in the second part of this piece...
http://www.babybulls.com/PDF/11-10-04_RANTING_ANDY_TOO_MANY_TOPICS_FOR_A_COMPREHENSIVE_TITLE.pdf
This Hoffman guy, writes with clarity and covers it pretty well. . Thanks for the link, dude. I haven't checked all his links yet, but I like his 'gold deathstar' analogy. He's pretty pissed, and a great American.
How delightfully Turdworthy!
NONSENSE. I'll bet you nearly NO ONE is actually selling real gold. They're selling PAPER positions. Quite a difference.
I bought some last week. They sold it to me and I sure hope it was real.
Btw. I bought at liberty coin in Del Mar. First time there. Found them advertising on ZH. Great service and prices ( $10 less than CNI on Eagles).
I will be back.
ZeroHeads are wierd. Everytime someone sports some goodlooking tits there is an outcry while nobody cares if this boy shows this undersized balls...
I thought they were nostrils at first....
Too balls;didn't look
Right! I sold my position in SLV. But I never even considered selling anything physical.
If you’re not out now, the damage is already done. At least my Macro Millionaire followers managed to coin it on the downside with some well-timed positions in out of the money puts, which they have already covered profitably.
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Out? Why the hell would I be out? Your Macro Tent Dwellers are broke. Selling the precious for toilet paper is not a trade. It financial sucide.
What will your Macro fools use to to pay the zombies when they come running down their driveways or tent parking lots? Or the prison guards who want their daughters? USD!! OMFG!
You ensured your Macro tent dwellers a tent in Dallas. Thank god moron traders and the stupids who buy your crap are out. I backed up the freight train today.
I will back up the Freight train tomorrow.
Then I will sell my tradeable gold and silver to your Macro tent dwellers as they panic when gold goes up 300 dollars in one day.
But by then they'll realize that their tent is worth more than the paper firewood or the AAPL you told them to buy.
Let's review this "think piece" in a few months.
you're first paragraph is like the rest of your writing, senseless
Get back to us at year end and let's see where things stand.
numnutz
Gold didn't turn into paper.
Trying the "fear play" as a lead generator? You've come to the right place but you're going to have to do better than that. Why don't you go with Obama is a Nazi or Fascist or Socialist or Chinese?
Good one, Inconvenient. Shameless self-promotion. Why does Tyler let him splooge all over the site?
Perhaps for the same inscrutable reason that Leo Quislingasskiss was allowed to do the same here for so long --- all while jacking off to his bedroom wall poster of John Maynard, no less.
Gold can't turn into paper, and most important of all, no matter what efforts TPTB make, paper will never, ever, turn into gold. It always reverts to what it is, an empty promise.
If MHFT thinks this kind of price action represents any price discovery at all, then he is kidding himself.
I think the two most likely possibilities from here on out are:
1 TPTB can't manipulate the price any lower, OR
2. they can, but they won't.
I used to think the former were the case, because if they could get gold down to $300, wouldn't we already be there? I no longer believe this is the case.
Now I think the latter is true. The manipulators have shown their hand too much. People get what is going on and we are already seeing dealers experience "technical difficulties" on their sites and delays in delivery when prices are manipulated to low, too fast. If TPTB run prices too low, they risk decoupling physical and paper prices and bringing the whole system down.
Thusfar I'm still impressed by the cahonas on this trader. He has made some crazy calls.
The calls (or puts) are published after the fact.
If this joker can make millions due to sheer frigging macro brilliance, why would he have to advertise a newsletter or brag on ZH?