Goldman's Head Gold Trader On The Recoupling Between Gold (Which Is Up 14% YTD) And Money, And Why This Is 2008 All Over Again

Tyler Durden's picture

From Goldman head gold trader, not the always wrong sellside analysts or researchs, Zak Dhabalia. Note none of this shoule be a surprise to those who invest in gold, instead of trading it based on 1 minute momentum, which unfortunately is ever more of the bipolar investing public.

Well its hard to be coherent let alone add any value after the some of the moves we have seen in the last few sessions. Gold fell 12% in 3 days to reach 1535 this morning before bouncing back to 1620 an hour later. Silver has fallen 33% in 3 days to $26.15 this morning having been at $40 last week and almost $50 back in May.
 
It seems hard to believe but Gold is still up 14% YTD and only back to the levels of beginning of August whereas silver is basically flat on the year. This reflects the separation of the monetary asset and industrial characteristics of gold and other precious metals. Indeed Palladium is now down over 22% on the year and Platinum down 15% suggesting real concerns about the outlook for industrial demand on a global basis where Asian demand for PGMs have been critical to prior price rallies.
 
This reminds me very much of late 2008 when gold fell from 1000 to 700 (30%) but the other metals and even equities fell over 50%. Then and now many commentators were wondering if the game was over for gold especially as Vols quickly spiked to such high levels in the prior run up, always an important indicator of coming corrections as the safe haven characteristics then become more suspect. What we are seeing in the market place is high volume turnover on the exchange but extremely low liquidity and huge activity on the screens rather than in the OTC discretionary space where most of our counterparties have had very little risk in gold for several weeks. Interbank flows are almost extinct.
 
There is no doubt that long risk in gold has been drastically cut back. The latest comex data show another 1.5m oz fall to 25m oz and I suspect the data for the week ending tomorrow could show a decline of over 3m oz. The ETF positions appear to have been more resilient. The concern will be if tech funds decide to cut entirely and even go short. In this liquidity that can still have a significant impact on prices. However in the context of the macro markets I am not convinced at all the game is over for gold. In fact far from it. The rally in the dollar is not from a position of strength but more a reflection of panic about the risk of disorderly outcomes to fiscal and monetary policies in the face of poor political coordination. The search is for liquidity and the prices of industrial metals suggest real fears about the future growth of demand.
 
I think such a backdrop will be a supportive environment for gold in the same way that it outperformed in 2008 into 2009 but also for nominal performance. At that time Central Banks were also sellers but now we have seen official sector demand throughout last week during the decline. Anecdotally we have heard that physical demand in India is picking up hard this morning.
 
I firmly believe that as we have seen several times since 2008 these financial spec corrections for gold allow the bull run to reset positions and cleanup the market for the overall trend to remain intact and take prices higher later.  It makes sense to be cautious with vols so high but those buying gold below 1550 for medium to long term views are being handed an opportunity where the risk reward seems a wonderful opportunity.
 
Good luck
 
Zak

Gold options( Lars Ahlgreen )
1m 37.00/40.00
2m 35.00/37.50
3m 33.50/35.75
6m 31.50/33.50
1yr 30.50/32.50
 
Gold vols through the roof, and liquidity all but evaporated. 1mth vol trading up 8 vols from the close on Friday, with a large variety of smaller names buying. The velocity and extend of this down move has definitely surprised me, but in the context of metals it unfortunately makes sense.
 
Silver
1m 60/80
2m 55/70
3m 50/60
6m 49/54
1yr 46/51
 
Silver vols exploding. 1wk is up roughly 50 vols from the settle on Friday and the market is very wide and extremely illiquid.
 

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Mr Lennon Hendrix's picture

Central Banks hold gold not for tradition but to use on their balance sheets.  It is the only performing asset on the aforementioned.  So, if the price of gold goes down any further, we will see a bunch of bankrupt Central Banks.  Audit the Fed, and maybe we find out to justify their liabilities gold should actually be $5k.  Just sayin'.

Libertarians for Prosperity's picture

 

 

 

Anyone know why Turd removed those charts from his post last night?  More bad charting?  Well, I happen to remember them...just three hours after he called a double bottom in gold in the low 1600's, it collapses to the mid 1500's.  Same with silver....some nonsense about how the charts are trying to show a "bottoming".... then it collapses to the mid 20's. Both of the charts made him look very incompetent. I thought only SilverGoldSilver deleted his bad calls.   

I have absolutely NO IDEA why anyone follows his charts.  First, in the beginning of summer, he misses the entire ~$400 move to the upside. And now, he misses the entire ~$400 move to the downside.  He posts charts and analysis that's proven wrong 2 hours later.  It's just unbelievable.    

Worst technical analysis, ever. 

 

 

eisley79's picture

technicals only work in white swan land, its the fundamentals that matter, and they are the strongest they have been in modern human history for gold.  No market moves straight up, and corrections shall always occur, but that doesnt change fundamentals.

Capitalism, as corrupted as it was for the last 30 years, ended in 2008.  Anyone trying to "trade" gold on margin, or moving in and out, is bound to get hurt.  That's not investing, its gambling, and those people are missing the very point to hold own precious metals (real physical ones).  Doubly so in the post 2008, post capitalism world of so called "markets".

 

As soon as these things change, then the case against gold can hold water.

1.) Every major Company and Country, and all families, farms, and small businesses, would be just fine in a world where interests rates are their historical norms of 5-8%.  As long as there is so much debt, (which is completely unpayable), our financial system will never be sound.

2.) The actual physical economy is worth more than the total notional value of all derivatives in the world (not net neutral'd through counter parties, but add up both sides of all contracts)

3.) Money printing is limited, either by the people (through congress, read GREENBACK), or is backed by some underlying asset.

4.) Fractional reserve banking is illegal.

 

So, let me know when the case against gold is valid............

Mr Lennon Hendrix's picture

Our war is a spiritual war.  We are here to regain our freedom and sovereignty.  We will use any means necessary.

We will speak truth to power.  We will write truth to power.  And we will take back what is rightfully ours. 

Ours is our labor, for it is ours and only ours.  We will not be taxed on such, for it is our inalienable right to keep our fruits when we so choose. 

Ours is our wealth, for it is ours when we so choose.

What they have done, what the criminal syndicate has done, is to manipulate the minds of our brothers and sisters into believing their lies.  Their ways are tricky, and the outcome is treacherous.  Now our brothers and sisters need our help, and we must to help ourselves.

Now we will take back our wealth, and take back our freedom, and take back our sovereignty.  We will do this all at once.  We will take back our wealth as we know it by taking back the money supply.  We will take back our freedom and sovereignty by speaking and writing and protesting the lies of the criminal syndicate.

Now we march to the drums of our forefathers, and their families, who gave their lives for us!  Now we take back the system that was created as an ideal.  Now we make the idea whole.

End the Fed!

Buy silver!

edotabin's picture

In other news, that monitoring program concerning messages about the FED just overloaded after stumbling upon the prior post !

Oh regional Indian's picture

Iin other other big brother news, indian phone companies will now limit all their clients to 100 sms'es a day. Whaaaat? Some really dumb justification for it too.

And this sms mad nation just swallowed this blanket order like one big mass of sheep.

Bleat!

And the snap-back in metals will be equally "vicious" to the upside. We will flail our way to $100 (today) dollars an Oz of Silver.

ORI

Watch this

markmotive's picture

Here's a good overview of how gold reacts during a financial crash:

http://seekingalpha.com/article/295567-how-gold-performs-during-a-financial-crash

I liked gold at $1900. I love it at $1600. I'll marry it at $1100.

trav7777's picture

dude...wtf?

Do you think that there exists some MAGICAL source of that 5-8% coupon you think you're entitled to???

They can only PAY YOU that if they can EARN it somewhere else!  Credit is supply and demand, man...why can't you people get this?

Sophist Economicus's picture

Credit is supply and demand, man...why can't you people get this?

 

True, But you have to admit that the entire interest rate curve is being deliberately distorted.    Bernanke is buying the long end of the curve for a reason, in 'normal times' there is no way the 30 year should be under 4% for this shot-in-ass government debt

eisley79's picture

entitled to ??  uhm, people are desperately praying it doesnt come, try more like 20-30% once the real money printing debacle runs its course.

You think people can print money endlessly and nothing happens?  I think you need to go back to Econ101 kid

 

The Historical averages are caused by market forces, not "entitlement".  People "invest" money and take risk, if the one who the risk is being taken on (the debtor), doesnt ante up, people wont buy. 

 

You think anyone wants US treasuries if they had a choice LOOOOOOOOOOOOOOOOOOOOOOOOOOOL.   I got some ocean front property in Idaho to sell you.

trav7777's picture

Find me something ELSE that will reliably pay 4%.

If you can do that we can borrow at 0 and go do it and become insanely rich.

People "invest" money and take a risk and they hope to earn a higher ROI than they borrowed at.  All money is borrowed, remember?  The economy has to grow at a higher rate than the rate of interest.

A 0% aggregate interest rate suggests ZERO DEMAND for credit.  There is NFW a banker would lend at 0% unless he had no choice.  Chew on that one...

tmosley's picture

Or infinite "money" on "deposit" ready to be lent out.

You never were very good at looking at both supply and demand at the same time.

eisley79's picture

a.) all money is debt, is the current system, you incorrectly state that as if its principle.  That is the very system that has failed, see my comments up...

b.) you seem to confuse modern educated gambling, and arbitraging (both things) as "investing".  To help you when your stupidity gets in the way, try thinking of an easy example.  Like when the railroads were built across the United States.  Debt is issued to build the railroad, those who invest in are paid interest for the risk of letting someone else have their money.  You are confusing cause and effect.  Debt is not a commodity, it has been commoditized....but its not a commodity.

c.) currently interest rates are being set, not being "determined by market factors".  A true 0 interest rate, would not imply a lack of demand for credit.  It would imply people were willing to give someone else their money and expect nothing in return.  The only reason that would occur, is capital preservation, and in the 0% case, not having the ability to preserve capital more safely elsewhere where rates arent 0%.  Such a thing could never occur in true free market conditions. 

But, when everyone and everything has more debt than they can possible pay back, and everyone knows it, AND when all accounts are settled in said debt (aka currency but its actually debt currently as you pointed out), then people are willing to do that which they dont want to.

Arbitrage then occurs when other people take advantage of this underlying problem, to extract "free money".  The only problem is, when the failed system causing that imbalance actual goes supernova, debt will show exactly what it truly is, and what it can do when it fails.

trav7777's picture

banks have always had infinite money to lend out, idjit.  They create money in our system.

Back in the 40s, the aggregate credit base was like $350B.  Now it is $52T. 

Demand is what sets rates

eisley79's picture

lol, i'll be sure to save that one and keep quoting it to you.

i dont have time to educate you on how wrong a statement that is.  You dont have a clue, but keep reaching for that rainbow!

theotheri's picture

>>You think people can print money endlessly and nothing happens?  I think you need to go back to Econ101 kid<<

 

Who is printing money endlessly?  The m3 supply levels off and the barberic relic goes parabolic. 

 

http://www.howprofit.com/wp-content/uploads/2011/05/US-M3-VS-Gold-1970-2...

 

Bingo!  There's no correction.  And it will keep correcting, down to its economic value of around $1000/oz.

trav7777's picture

the long bond does not dictate what the aggregate ROI is.

The economy cannot grow fast enough to generate the yield commensurate with the sovereign risk that is the USA.

Don't put the rate curve up there with what real interest rates should be...I submit that the 2% or whatever that the gov pays reliably is BETTER than what you could get if you went out and actually tried to DO something with the money.

There is no return to be had here anymore...anywhere.

eisley79's picture

for the very reasons that everyone said above when correcting your ignorance, you can see the result, now try to understand the cause.

trav7777's picture

I've already stated the cause, doofus.

Aggregate yields are ZERO. 

This is why brazil can have a 10% rate and we a 0 and we AREN'T seeing explosive growth!  There is no growth to be had here.  We're tapped out.  Same as Japan for 20 years...no growth.

eisley79's picture

there is too much debt, that is why there is no growth, i realize i didnt say it clearly enough for you in the last post, so if you still dont get it, come out of the basement and ask your mom to explain it to you.

HCSKnight's picture

"Credit is supply and demand, "

Partly true, incomplete really.

It is the supply and demand of hope and belief.

If you doubt his, consider what happens if people no longer believe in paper currency or the rule of law.....

trav7777's picture

nonsense.  ALL credit was demanded by people.

All of it.

When they stop demanding more credit because growth stops then rates attempt to cheapen credit to attract more borrowers.  This is what happened to Japan and it is happening here.

There is simply very little to do in the US and earn a positive ROI even at 0%.  Why the fuck would you when brazil has been exploding and you can fall in a hole down there and get rich?  They can support an interest rate over TEN percent!  That should tell you about their real growth rate and how immensely profitable in the aggregate their economic climate is that they can support a rate that high. 

eisley79's picture

nope, you are confusing cause and effect, educate yourself

Dingleberry's picture

Anyone that follows "technical analysis" is a complete idiot, as the MARKETS ARE RIGGED.  

Smiddywesson's picture

Markets are always rigged, on all time frames, all of the time.  Price is always being manipulated, or recovering from being manipulated. 

Your comment is half true.  Technical analysis is still useful for measuring the effects of price manipulation and figuring out the scam. 

DCFusor's picture

You got it Smiddy, or for seeing the scam as it happens, and quickly reacting to it so it works for rather than against you.  I don't sit here watching the blinkenlights all day for nothin'.  The slow get taken for a ride, not the quick.

tekhneek's picture

Staring at a chart in a manipulated paper market is kind of like fucking to get your virginity back. It doesn't work and it's a waste of time and it makes you make stupid ass decisions.

Regardless of that: I bought at $35... bought at $30... wasted all my dry powder. Damn, did I make a mistake? I don't necessarily think so.

I hope this lasts til Friday and I'm going to dump whatever else I can afford in. IMHO this is a short time period where opportunity knocks vigorously. I can't wait to see all the "targets" and "predictions" at the end of the year.

Hilarious how the vibe of ZH changes as prices of PMs go higher/lower. Lower: Everyone knew it was going to crash, Higher: Everyone knew it was going to go higher that's why they "had their calls in place months ago" when they themselves were admittedly "predicting" an absolute crash.

Only when the price drops 30%+ do you have jackasses come out of the wood work predicting another 47% loss "Back to $11 which is fair value jackasses!!!" or whatever the hell. They must have a really, really huge calculator. It's hilarious, even to the upside so to the downside. Nothing goes down forever (except BAC), especially not commodities like silver/gold/oil.

Buy while the buyin's good and it's still available for purchase. A lot of my vendors are completely out of stock.

thunderchief's picture

Physical above ground supplies/ Production ratio/ Price/Physical Demand

Everything else is Propaganda.

Remember that when you put your money down and buy more bars tomorrow.

Jason_1sandal's picture

I would love to see silver at $11 ! It won't happen though. I hope it stays low til next friday that's when I can aquire more. Hopefully the local dealer has some in stock....

 

Argos's picture

Just got back from a visit to my local guy in Phoenix.  He had 1, 100 oz bar of silver.  He got cleaned out on Friday.  No estimate of when more will be coming in.  At least he was open.  I've been buying the dips for years.  I've never seen him out of silver before.

Dingleberry's picture

we are in the 3rd inning of this perpetual crisis (3 years and counting).  Let's see how the PMs are faring at the bottom of the 9nth....

theotheri's picture

Save the baseball metaphors for your 4th grade audience.  This is the real world.  Gold and silver are tanking NOW because the bubble has popped. Neither gold, nor silver, are safe haven assets. Both are wildly overvalued and the correction will continue.

tmosley's picture

Perhaps because he has acknowledged that PMs are no longer being moved by the regular manipulators?

Funny how you can only seem to find two errors after a whole year of amazingly accurate predictions.  I always thought it was a fools errand to try to make short term predicitons like he did, but he was amazing at it.  Yet here you are, butthurt as usual, expecting him to be some kind of psychic, which he NEVER claimed.  He has said on numerous occassions that he is "just a guy with a Macbook".  But you demand that he be fucking Edgar Cayce or something.

So sorry if technical analysis breaks down in the face of unexpected moves from the Fed that upend the entire economy from end to end.

You are a fucking joke.

tekhneek's picture

Kind of reminds me of earlier this year when trav was ransacking you because you saw silver breaking $50 ... then there was 5 margin hikes in less than a few days and he said you were a jackass for making those kind of bold predictions when everyone knew it was overbought at 50 etc.

trav7777's picture

yeah, because IDIOTS only see the obvious in hindsight.  Lemmings are what you are...right off a cliff.

Bicycle Repairman's picture

Yeah Trav.  You're not an idiot.

BTW, how's the zirconium cladding at Fukushima working out?

trav7777's picture

well, let's see...according to the hysterics, we should have all been dead by now, right?

I mean, fuck...that was how long ago now?  And we're all still alive.  So maybe I was right in telling you people not to panic?  Yes, Fukushima was a hell of a catastrophe with immense issues, but it was NOT the end of the fucking world and not even close.

We had paranoid nutballs like mosely-claven suggesting that everyone in Tokyo would soon be dead or evacuated...like within a WEEK and shit.  Others saying similarly insane shit.

I was only saying don't panic and life goes on and this will not end the ocean or the world or life as we know it.  And I was right.

theotheri's picture

I can't believe it but I actually agree with this racist bastard. 

Bicycle Repairman's picture

"And we're all still alive."

Cancer takes a while to emerge.  In order to perceive it's appearance, data must be collected and analyzed.  Given the effectiveness of hiding the open air nuclear testing debacle from the 1950s, I expect that this data will be obscured as well.

"So maybe I was right in telling you people not to panic?"

Your message was that the problem was completely contained.

"Fukushima was a hell of a catastrophe"

See, again you try to obscure the truth.  Fukushima is on-going and intensifying.

 

 

fuu's picture

We can always fondly recall your sub $1000 gold call last summer.

"On a long enough timeline, I'm sure gold will go up.  But that is of little consolation to those who are told to buy gold on a $17 dip, when there is a significant risk that a deflationary buzzsaw will price gold below $1000 in the next 9 months."

http://www.zerohedge.com/article/gold-plunges-paulson-liquidation-speculation-abounds-again-fund-rumored-be-down-1-billion-da#comment-474301

 

Dumpster Fire's picture

hahahahaha owned fuck that guy

Libertarians for Prosperity's picture

 

 

Jesus Christ.  First of all, that's RNR, not me.  

Secondly, you're pulling quotes from July 2010 - before the announcement of QE2.  QE2 changed EVERYTHING.  If not for QE2, deflation would have ravaged this country, and gold would have been under $1000.  I'm sure when QE2 was commenced, RNR changed his opinion dramatically. Anyone would have.  

Third, neither RNR nor I happen to run a precious metals website. I don't pretend to be a professional, nor do I give investment advice.  Big difference.

 

tmosley's picture

I see, so you are an armchair quarterback, and you admit that no-one should listen to you.  Got it.

Also, nice try on the lie that you aren't RNR.  No-one is falling for it.

Sophist Economicus's picture

Secondly, you're pulling quotes from July 2010 - before the announcement of QE2.  QE2 changed EVERYTHINGif not for QE2, deflation would have ravaged this country

 

LOL!!!!    Newsflash - Deflation is ravaging this county!    Also, why the heck do you think folks here invest in PMs?   Doesn't take a genius to guess that there will be infinite QEs, there are those of us here who anticipated it and more to follow.    BTW, if you understand Bernanke's work, the fate of the US Dollar once FDR unpinned it from gold in 1933 and the history of all fiat currencies, then you should know that the probability of fiat going to zero is greater than gold depreciating vis.a.vis an UNBACKED, fiat dollar

Panafrican Funktron Robot's picture

"QE2 changed EVERYTHING."

Yeah.  So do unprecedented, extreme margin hikes.  Actually, margin hikes generally affect things more, when you're talking about the dollar price of an asset traded on a futures exchange.  

But you're obviously not a trader, so I'm really unsure why you're even commenting.