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Morgan Stanley Redeems Paulson Investments: Explanation For Recent Gold Liquidation?

Tyler Durden's picture


In key news that may well be the missing puzzle piece to explain some of the very odd market moves in the past week, we just learned courtesy of CNBC, that Morgan Stanley's Wealth platform unit has finally, after months and months of considerations, pulled the plug on the fund that for the second year in a row is one of the three worst performing in the weekly HSBC report and is now redeeming. That in itself is not unexpected. What however is notable is that MS withdrawing hundreds of millions in feeder capital may well explain why gold has seen such a dramatic dislocation in the past week. Recall that at Paulson & Co, gold is not simply an investment - the bulk of direct gold investments at the once legendary investor are in the form of (largely underperforming) gold mining stocks - but an actual investment class. In other words, instead of being denominated in USD, investors are actually denominated in (paper) gold, with a fixed conversion into GLD at inception. This means that upon liquidation of gold-denominated shares, any gold-denominated shares, he has no choice but to sell GLD, and by virtue of this being the most liquid paper instrument in the PM space, gold. Does the massive gold dislocation in the chart below now make more sense especially since Paulson was aware of MS' intentions days in advance and traded, or in this case liquidated, appropriately)?

Spot the moment on the chart below where Paulson may have gotten the redemption fax:

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Wed, 12/19/2012 - 19:41 | 3080791 dugorama
dugorama's picture

Are we suggesting that Paulson may have traded on insider information?  That would be illegal!

Wed, 12/19/2012 - 16:50 | 3080105 Xibalba
Xibalba's picture

MS bottom, Paulson bottom, Brown bottom.....Kardashian...um I 'mean..which one of these is not like the other? 

Wed, 12/19/2012 - 16:54 | 3080112 MillionDollarBoner_
MillionDollarBoner_'s picture

MS = cunts

Paulsen = cunt

Brown = Scottish cunt

Fuck them all to hell and back!

Edit: Ooops...forgot one...

Kardashian = thick cunt ;O)

Wed, 12/19/2012 - 16:53 | 3080114 new game
new game's picture

i didn't see any fax here!

now i'm getting very, very upset over this oversight.

Wed, 12/19/2012 - 16:56 | 3080116 scatterbrains
scatterbrains's picture

Who's going to be redeeming next and which way is their boat listing so I can move to the other side ?

Wed, 12/19/2012 - 16:57 | 3080123 new game
new game's picture

we all be leaning over board grabbing for our sinking pm-s!!

life jackets ahoy mate!

Wed, 12/19/2012 - 16:57 | 3080124 LoneStarHog
LoneStarHog's picture

This Paulson character should be prevented from owning/playing the game of Monopoly.  I am sick of the names Kardashian and Paulson.

Wed, 12/19/2012 - 16:58 | 3080126 SilverMoneyBags
SilverMoneyBags's picture

Buy physical. It can't be manipulated.

Wed, 12/19/2012 - 17:07 | 3080159 Bastiat009
Bastiat009's picture

But it can be sold ... and bought. It's a market, a very small market. Price fluctuations happen.

Wed, 12/19/2012 - 17:18 | 3080190 jomama
jomama's picture

erm, but the price in bennybux can be?

Wed, 12/19/2012 - 16:59 | 3080131 new game
new game's picture

i now feel much better knowing what may have happened- how about you?

Wed, 12/19/2012 - 17:01 | 3080137 I Am Not a Copp...
I Am Not a Copper Top's picture

I demand an investigation into who in the hell allowed the market to sell off into the close.  THIS IS BULLSHIT!!!!  IT IS NOT ALLOWED!!!!

Wed, 12/19/2012 - 17:01 | 3080140 buzzsaw99
buzzsaw99's picture

it didn't take carnac to make an educated guess the selling was due to paulson

Wed, 12/19/2012 - 17:22 | 3080204 ParkAveFlasher
ParkAveFlasher's picture

Me too, BS99, I totes saw this coming and said nothing, like you, and, like you, I have been chuckling to myself on a retroactive basis for some time now.  I will update you when I am dead right again, on a backwards basis, some time in the future.

Wed, 12/19/2012 - 17:27 | 3080230 buzzsaw99
buzzsaw99's picture

i have mentioned soros and paulson a number of time over the past few days pinhead. you are just sum dum fuk i don't even know who you are and i can tell that much.

Wed, 12/19/2012 - 17:52 | 3080345 kliguy38
kliguy38's picture

You really think anyone gives a shit here about your prognostications........snore

Wed, 12/19/2012 - 17:05 | 3080141 falak pema
falak pema's picture

has paulson done a mega dump of golden shiny?

He and Soros of Mordor?

Sauron's ring Yikes! 

where is Frodo??? to save gold?

The ugly face of ZIRP HF financing when the asymptote emerges... and people lose their "iron" Oligarichal nerves.

When thieves fall out...as margins compress.

Wed, 12/19/2012 - 17:04 | 3080144 nahshal
nahshal's picture

Invest in gold? I persevere hearing on CNBC that gold isn't cash. Even Kudlow same that gold is for the tip of the planet play. for more detail visit this site. fly38

Wed, 12/19/2012 - 17:08 | 3080166 MeanReversion
MeanReversion's picture

This article is absurd. Selling GLD no more effects the price of gold than buying or selling SPY affects SPX levels. It's an instrument that is purely derivative of the underlying asset and market makers are allowed to ensure it tracks the underlying.

Now if new GLD shares are created while gold is added to the trust, then theoretically that acquisition will of course have some impact on the market, but GLD follows gold, not the other way around

Wed, 12/19/2012 - 17:15 | 3080186 cifo
cifo's picture

Not really a derivative. GLD is supposed to hold physical gold.


Wed, 12/19/2012 - 17:25 | 3080222 MeanReversion
MeanReversion's picture

Well physical gold doesn't actually trade. A share in GLD IS basically a claim to gold in the trust. A share in GLD is a derivative instrument in that sense. Bear in mind you can't redeem GLD shares unless you mean certain minimum share thresholds, so the overwhelming majority of people will ever have a paper claim to a beneficial interest in the trust assets.

Wed, 12/19/2012 - 17:42 | 3080290 NotApplicable
NotApplicable's picture

Basket redemption for "physical" is for 50k shares, and requires a club card.

At this point I'd assume any real physical has been swapped out for Comex paper by the criminals in charge... er, I mean the "custodians."

Wed, 12/19/2012 - 17:40 | 3080280 NotApplicable
NotApplicable's picture

physical gold = Comex paper.

Care to reasses your view?

Wed, 12/19/2012 - 17:25 | 3080221 ParkAveFlasher
ParkAveFlasher's picture

"market makers are allowed to ensure it tracks the underlying."

Allowed, yes.  Limited to, no.

Price discovery follows: I have real physical gold, I won't sell it until you beg me for it.  Price = what I want it to be.

Wed, 12/19/2012 - 17:29 | 3080240 buzzsaw99
buzzsaw99's picture

beg you? hahahahahahaha!



Wed, 12/19/2012 - 17:36 | 3080267 ParkAveFlasher
ParkAveFlasher's picture

You won't, but Ben & Jamie will. 

Wed, 12/19/2012 - 17:38 | 3080275 buzzsaw99
buzzsaw99's picture

dream on plankton boi

Wed, 12/19/2012 - 17:31 | 3080250 Tyler Durden
Tyler Durden's picture

Uhm, you realize you are about 100% wrong? The underlying does not move the market? Perhaps it is time to move beyond 1995.

Reflexive moves in the underlying based on uber levered derivatives is precisesly how the market is moved these days.

You do realize that the entire market is moved simply by dint of the ES - this is why companies plunge by 10-20% on earnings when the blended hopium average never matches up with the underlying cashflows.

Still no bells ringing? Look up JPM CIO, where Bruno Iskil moved the entire investment grade market by selling and selling and selling IG9, up until the point where he ran out of cash and the market blew up in his face.  Yes, it blew up in the end, but he was in charge for a good 6 months!

Wed, 12/19/2012 - 17:47 | 3080315 IridiumRebel
IridiumRebel's picture

"Über levered"

Love it.

Wed, 12/19/2012 - 17:49 | 3080333 NotApplicable
NotApplicable's picture

To me, the idea of denominating a fund holding GLD, in GLD is a disaster waiting to happen.

Is there any rational reason one would do this? Or was it just another sucker-bet for those who would play the paper gold game, a step removed?

Wed, 12/19/2012 - 17:50 | 3080336 Bay of Pigs
Bay of Pigs's picture

Nice. Someone please forward this comment to Mish, Denninger, Kid Dynamite, the Screwtape Files crew, or any other blog that talks about GLD and SLV being legitimate and trustworthy PM investment vehicles.

Wed, 12/19/2012 - 18:13 | 3080432 MeanReversion
MeanReversion's picture

"True" derivatives are an entirely different animal. Take puts and calls and max pain theory, you very often see a relationship with where a stock like AAPL will settle often between strikes with high open interest. Coincidence? Probably not. There's quite likely inherent manipulation of the underlying to benefit option sellers. Same with IG9. Market participants who know a large trader is making large bets would sensibly take the flip side including taking opposing positions in the underlying.

SPY and GLD are basically depository receipts. I use the term derivative instruments loosely with such ETFs. There's a huge difference between what's basically a wrapper instrument and conventional derivatives which are true credit instruments. Sales of gold futures will impact GLD but not the other way around. GLD doesn't hold gold futures (according to the Prospectus), if it did we'd potentially have a different story.

Wed, 12/19/2012 - 23:59 | 3081553 cifo
cifo's picture

With all due respect, wake up to reality. GLD may have been created just for this purpose, to influence (manipulate) the price of gold.

Wed, 12/19/2012 - 17:09 | 3080168 razorthin
razorthin's picture

Explain silver.

Wed, 12/19/2012 - 17:45 | 3080304 NotApplicable
NotApplicable's picture


Next question?

Sun, 12/23/2012 - 20:42 | 3091994 MeelionDollerBogus
MeelionDollerBogus's picture

more detail please? I provided plenty in my reply. Wondering if you can elaborate some on it.

Sun, 12/23/2012 - 21:00 | 3091990 MeelionDollerBogus
MeelionDollerBogus's picture

I learned to do this in school, quickly forgot it without practical application & was reminded by a helpful article (Silver Breaks its Golden Shackles : Adrian Douglas virtual price of silver scatterplots ) from Adrian Douglas of GATA. My findings are as below:

Silver moves with gold like this: 2011 dec 27 gold 07 | goldpricemodel | silver gold scatterplot 10 years

see, all tangibles have relative value but all have real intrinsic value vs fiat paper that has no limits at all on quantity, therefore no limit to the debasement in normal terms. In extreme terms there's always another limit to encounter, a chaotic boundary of confidence loss. Many factors dictate where this boundary will be at any given moment but on the other side of the boundary the currency (or many) in question ceases to exist. It's just an historical footnote of continued currency failures.

BEFORE that event however we see the ratio of tangibles, in log-log scale scatterplots, vary depending on available supply with available benefit based on current technologies for each. Gold & silver are money but they serve OTHER purposes & that dictates variability in how each moves together. They always move together.

I will not bore you with deeper theory of how & why. I don't even know all those answers. What I do know is the scatterplots show you HOW MUCH they move, and when, so you can do something about it now in terms of investing.

Currently the last 60 days is showing me a 2.35 power. This means silver moves like a 2.35 etf for gold, whereas the actual 2x ETF for gold UGL attempts to move 2.00 or something like that. This is NOT a "multiplier" like "10% x 2 is 20%". Not at all. It's powers. It works like this:

g_ratio = gold_now / gold_past

s_ratio = silver_now / silver_past

log(s_ratio / g_ratio) = 2.35 (last 60 days, max to min).

Over a longer period (months) it looks like 2.26.

The big red sloped line in the 10 year scatterplot linked about shows something more around 1.3.

These numbers always indicate a SLOPE on the scatterplot. Positive slope is from bottom left to top right.

OVER-Performance in silver vs gold is a positive slope exceeding 1.0.

To properly draw the slope on the scatterplot ensure the ratio for each grid-marker is the same % change. For example, if you want 10% jumps between grid marks you'd just log (1.1) since 1.10 is 10% additional to 1.0.

Now ensure gold & silver are both on this axis. A diagonal line connecting these grid-points is a 1.0 slope. The typical slope for silver is 2.0. Obviously you can see a lot of variation with certain price-regions on the 10-year scatterplot.

Isolating this down to predictable multi-month time-windows is how I map my gold price model to a silver price model. I have the math today to do it but I'm too busy to make that picture. The gold one is this:

goldpricemodel 2013 projection

The silver mapping is around 28.50 silver with 1600 gold and 47 to 49 silver with 2000 gold and 2400 gold yields 72 to 75/oz silver. Using the math given about you should be able to mark any place on the gold graph with a silver price. This equation can help:

17 x (gold_price / 1274) 2.31 = silver price


gold silver crossplot adrian douglas gata web_copy

This picture is what Adrian Douglas of GATA produced for an earlier time period. The methodology is the same. His article is here: More Forensic Evidence of Gold & Silver Price Manipulation

Whereas in Silver Breaks its Golden Shackles : Adrian Douglas virtual price of silver scatterplots Adrian Douglas determines silver has broken free, I determine in time series & scatterplots of silver vs gold have since shown only a refitting of the shackles.  So long as fiat currency does exist this shall be the case for ALL alternative monies from tangible goods, and all tangible goods period. My alternative take on the same "breaking of shackles" allowed me to map gold to silver prices ( 2011-3-30 silver price model parameters based on Adrian Douglas scatterplot ) for extremely accurate time-sensitive predictions that year. I continue to do so today.

You can see I revised use of a single slope through a cloud of data to using multiple slopes laddering up the data-cloud. Each rising slope was nearly the same; each declining slope was nearly the same. Both-increasing is in green, both-decreasing is in red. The slopes are not so different but it makes a $2/oz or more difference in silver-price computation so I prefer to be as accurate as possible.

Wed, 12/19/2012 - 17:09 | 3080170 dcb
dcb's picture

I honestly don't understand this post esp this part

, t"hat Morgan Stanley's Wealth platform unit has finally, after months and months of considerations, pulled the plug on the fund that for the second year in a row is one of the three worst performing in the weekly HSBC report and is now redeeming. That in itself is not unexpected. What however is notable is that MS withdrawing hundreds of millions in feeder capital may well explain why gold has seen such a dramatic dislocation in the past week."

Wed, 12/19/2012 - 17:10 | 3080172 AgShaman
AgShaman's picture

Morgan Stanley:

Our most profitable platform going forward will most likely be our precious metals "products"....

We will be happy to make large purchases on behalf of our clients....

and of course, we will need to charge some fees to account for the "storage" of those PM's

Wed, 12/19/2012 - 17:11 | 3080176 Kreditanstalt
Kreditanstalt's picture

These clowns can't play with most of my gold holdings...I still have exactly the same number of ounces as I did before...

Wed, 12/19/2012 - 17:20 | 3080200 Boston
Boston's picture

I have more ounces today than I had yesterday.......

Wed, 12/19/2012 - 17:13 | 3080179 Kreditanstalt
Kreditanstalt's picture

Must have missed the memo...

Wed, 12/19/2012 - 17:14 | 3080180 apberusdisvet
apberusdisvet's picture

It's getting close boys and girls.  Does the new copper ETF for JPM augur this criminal leaving the silver arena for greener pastures?  Super tightness in the silver market these days.  Force Majeure by the COMEX, anyone?  Funny thing on gold; future production, at current prices could actually decrease YOY; look at South Africa; earnings reports on the big cap miners; no Russian or Chinese gold reaches the free market these days and may never again.  How many tons at Fort Knox, or are there only bio weapons stocks there as many have claimed?  When China achieves 4000 tons will they announce and ask the West to show it's stack?  That could be interesting.

Wed, 12/19/2012 - 17:29 | 3080243 ForWhomTheTollBuilds
ForWhomTheTollBuilds's picture

".  Does the new copper ETF for JPM augur this criminal leaving the silver arena for greener pastures?"


Why can't they manipulate both?

Serious question actually.

Wed, 12/19/2012 - 18:15 | 3080441 Al Huxley
Al Huxley's picture

They can, of course.  It represents an expansion of their fingers into new and exciting markets.

Wed, 12/19/2012 - 17:15 | 3080185 Quinvarius
Quinvarius's picture

Not the Paulson selling rumor again!  This must be the 5th time I have heard it in 3 years.  Not that it wasn't true every time. 

Wed, 12/19/2012 - 17:22 | 3080203 NEOSERF
NEOSERF's picture

And while I get the "buy PMs as inflation hedge" idea, the fact that you can't eat it and that the price is dictated in a largely illiquid overleveraged "market" that in the middle of a panic is as likely if not more likely to have margin calls left and right wouldn't let me sleep well.

Wed, 12/19/2012 - 18:01 | 3080385 Bay of Pigs
Bay of Pigs's picture

Gold is not an inflation hedge.

You still don't get it.

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