Morgan Stanley Deconstructs The Funding Crisis At The Heart Of The Recent Gold Sell Off, And Why The Gold Surge Can Resume

Tyler Durden's picture

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Captain Kink's picture

All that glitters this holiday season...


Merry Christmas to all you ZH nut jobs.  I couldn't make it without each and every one of you.

idea_hamster's picture

Maybe they should dub it the "AuFO-L spread" -- it would have that counter-intuitive/ironic tag name caché

whatsinaname's picture

What will happen to Au if RP gets the GOP ticket ?

Or what will happen to it if the USD/Euro goes bust before he ascends the throne ?




Troll Magnet's picture

well, thanks to our wonderful bankers, i picked up another 100 oz JM bar at what i consider to be a fair price and am patiently setting more cash aside to pick up a truckload when/if they *really* plunge.  more sale please!

Turd Ferguson's picture

Anyone looking for a better explanation than the MS nonsense re-printed above could start here:

SAT 800's picture

Your reference points to a page of hopeless, naive, babbling. The authors know nothing about the futures or forwards markets and the wild-eyed arm waving conspiratorial BS marks you as a non-student of the real world.

He_Who Carried The Sun's picture

...and gold is now $40 higher, and just below the critical 200 DMA that everyone saw as the catalyst of gold going to $0.

Nono, Mr TD, not to 0 but to 1300. There will be more trouble and GLD will be higher for sure. Is it going to reach the 1950 area again? Not this year, you know... ;-) Next year?
Well, the fundamental reasons for the last sell-off have not changed. Should additional capital requirements put many financial businesses under strain (again), Gold will drop.

How likely is that?

I am off to the island as of tomorrow. We've had some fun encounters overhere at ZH. Merry x-mas everyone!

Big Corked Boots's picture

"I am off to the island as of tomorrow."

Long Island sucks this time of year. But then, it sucks just about every time of the year.

He_Who Carried The Sun's picture

I am going a tad further south though...?! Have fun!

I think I need to buy a gun's picture

im so tired of all this shit the news feed is really slow with yet another 2000 dollar gold prediction. Its going to minimum of 10k overnight sometime soon,,,,,the gld chart broke its over its just when this weekend new years eve when?????????

WhiteNight123129's picture

Cachet is the right spelling  mon cher idea_hamster.

2 questions:

1. Is the recent strength of the dollar in Gold terms fundamentally justified given fiscal situation of the US?

2. Are we at a point of leverage which is tantamount to Kondratieff "spring", i.e. have we purged enough debt to make paper expansioncoming from a sound low level ofdebt?

Ok, then use funding squeeze to increase your position.




idea_hamster's picture

Merci beacoup!  Mon orthographe est vraiment affreux en englais et francais tout les deux, n'est ce pas?

steve from virginia's picture

1. Is the recent strength of the dollar in Gold terms fundamentally justified given fiscal situation of the US?

Yes, Saudi Arabia likes our dollars and continues to accept them. As more crude oil can be had for less dollars, the dollars are more valuable. What the government has to say about this is irrelevant.

2. Are we at a point of leverage which is tantamount to Kondratieff "spring", i.e. have we purged enough debt to make paper expansioncoming from a sound low level ofdebt?

Contrary to the bleatings of Republicans, the US government has unlimited borrowing power and can monetize its debt service practically forever. The decision to limit debt is political, it has nothing to do with economics.


 - the decoupling that matters would be gold from crude or other commodities as well as gold decoupling from the 'inflation' rationalization.

The idea of VALUE goes beyond a mechanical quantity relationship of some goods exchanged for others. Dollar worth in particular hinges upon what it buys, what it is proxy for rather than how many are in circulation. As the dollar's worth increases relative to petroleum, it will become a proxy for crude rather than the (falling worthless) other goods it can now purchase.

Hollywood, hookers, machine guns, coke, Congressmen, etc.

When the dollar can only buy crude or is held in order to obtain crude or its product, the dollar will have little VALUE even as it will be WORTH a lot in exchange for the crude. This will be so unless there is some other use for crude besides the current waste for no-remunerative return.

Note VALUE as opposed to WORTH. They are not the same.

Gold is an asset with value, this matters not whether you can get a 'good deal' on it or not.


DoChenRollingBearing's picture

Merry Christmas to you too Captain!

vast-dom's picture

FUCK YOU MS! Gold would have been well over $2k if it weren't for you et. al.

Turd Ferguson's picture

Importantly, the slide stopped almost right at the 3-year trendline from the lows of 2008. Price has fallen to this line 6 or 7 times in the last 3 years and has recovered each time. It will do so again now.

Clearing 1645 will confirm that the bottom of the manufactured, September-December "correction" is in. Paper gold will then rally through Q1 with a 2012 price target of $2300.

DoChenRollingBearing's picture

+ $2300

I have litle doubt that gold will do more-or-less what it has continued to do in the short-term ahead: march higher with its usual ups and downs.  Yeah, maybe to $2300.  Still a buy at $2300, but of course a better buy now at $1600 and change.

And then one day, real fast, all the gold will be GONE!  The FOFOA moment.

SAT 800's picture

There are no "manufactured corrections"; the prices are the result of the operation of the "hive mind"; it's a free market. "Clearing $1645" neither confirms nor fails to confirm anything. Long Silver from $29.35 basis March. It's easy to be a Guru in a long bull market; especially writing for the public.

StychoKiller's picture

I can think of $14 (make that 15!) Trillion reasons why Au/Ag are undervalued at this point.

Cognitive Dissonance's picture

We just bought more PMs on this dip. I love the fact that they continue to take our soon-to-be-worth-less-and-less fiat in exchange for even more Precious Metals. Just picked up our latest shipment at the PO.

It is a good day when I can fondle new-to-me PMs.

Boston's picture

Yup. Our rolls of Maples---bought last week at 1,590---arrive in a couple of days. Just in time for the holidays!

Cognitive Dissonance's picture

Call me suspicious, but they are not "mine" until they in safely in my grubby paws. Get(ting) physical baby.

DoChenRollingBearing's picture

The Bearing's household picked up little more yellow after rolling back in from Peru.

Dagny Taggart's picture

Nothing says festive holidays like sparkling PMs. Welcome back DoChen.

DoChenRollingBearing's picture

Thanks Dagny!  M.C. (note, I was careful NOT to write M.S...) to you and yours!

yabyum's picture

Turd, It was nothing but larceny. Why are these bastards not in jail?

Cognitive Dissonance's picture

Nice to see your smiling face in ZH Turd. Getting ready to post a two part series on the Golden End Game. Just one person's (mine) point of view, not gospel.

Anyone who states as 'fact' their view on how it (Gold and fiat) will all play out is even crazier than me.

Turd Ferguson's picture

I hear ya, CD. All we can say for sure is that the current "system" is unraveling. What happens next is anyone's guess.

San Diego Gold Bug's picture

TF,  Keep up the great work!  I think $2,200 will be acheived with a much higher spike possible in 2012 and cetainly 2013.  Hopefully they won't put all of is in the FEMA camp in Kansas (NDAA) between now and then.  I saw this on your site last week,, it has proven to be a good resource.  It must be one of your readers, hat tip to them.

Merry Christmas

Handyman's picture

My last order of Ag Maples and Grizzlies are still not here. They said a week or 2 at most. Tomorrow will be 3. They didn’t have to ship it very far.

I’ve got one more shot left in the powder keg and I agree with many of you that there is one more big dip but if it is accompanied by even minor chaos it will be hard to get it out of the bank let alone turn it into physical PM. I'm thinking I'll pull it now and keep the cash on hand. Then, play the situation as it rolls out. Cash may be more of a neccesity in the short term.

UnderDeGun's picture

Ok, is this the "baited hook" before gold takes the "dive" that is expected on the big flight to safety that's coming when the Euro tanks?

Smiddywesson's picture

Yes.  Gold is priced by the system.  Until the system is swept away, or until the banksters step in and change the system, gold will sell off with everything else.  In fact, knowing how fun loving the banksters are, they will use up their remaining margin hike and dirty tricks to pick up bargains just before the end.  There is no way to time this, so I gradually buy but I still save some purchasing power for the later stages where bargains will be available, until, without warning, they are not.

DoChenRollingBearing's picture

Another + 1

Slow accumulation of gold is what I have been doing for decades.  Buy a little more, then buy a little more as money comes in.  That has worked very well for me.  And it will continue (most likely) to work out very well for me in the future as well.

Until it doesn't: no more gold!

tony bonn's picture

it is articles such as this when i feel like i am getting a true education.....

of course ms is disengenuous when it does not disclose that it is part and parcel of the government sanctioned gold manipulation cartel but i am sure we will see such an article forthcoming...otherwise go to


Smiddywesson's picture

Good point, when the conspirators point out the existence of the vehicle they use to suppress gold prices, we can all bet it will be used for a head fake in the future.  Maybe we will see negative gold lease rates used to shake us out in the future.

Tinsu's picture

Sounds like time for "bubble" to meet "pin"

Caviar Emptor's picture

Live blogging from the Kim Jong Il wake and family funeral....

Gold is the only way to avoid imploding buying power around the world. Dilutional currency expansions, balance sheet expansions to accomodate still rising debt growth will only kill buying power half as much as deflating asset values and near zero interest rates. 


The Big Ching-aso's picture


 "FUCK YOU MS!...."

No, thank MS.   If it was well over $2k right now you wouldn't have been able to buy it at $1,575 which then you could conceivably sell for well over $2k.

Sometimes your long-term enemy is your temporary friend even while they're screwing you.    Look at it as PM Stockholm Syndrome.



DoChenRollingBearing's picture

+ 1 

Yes.  If they give me more time to buy more physical, they are doing me a favor, as well as all of us who keep buying.  You can think of it as:

"Merry Christmas, from your friends at Morgan Stanley"

GeneMarchbanks's picture

'The London Bullion Market [LBMA] defines GOFO as the “rates at which contributors [the market-making members of the LBMA] are prepared to lend gold on a swap against US dollars”.'

Market-making? You don't say...

mrdenis's picture

Buy gold in Canada bring it to the US and sell if for profit ..because it will weigh more ....canada has a lower gravity pull ...


FeralSerf's picture

Or in other words, Maples are a better deal than Eagles because they're slightly heavier?

Bullwinkle Moose's picture

Demand physical delivery. Accept nothing else. Paper gold will be just as worthless as paper money.

BoNeSxxx's picture

This is a true statement and one most here are well aware of.

Tyler's outstanding work on hypothecation, re-hypothcation, re-re-hypothication and re-re-re-hypothecation has been nothing short of stellar.  MF Global was the canary in the proverbial coal mine with respect to paper carry risk.

That said, I'd be curious to know from some of the vets here when it will be 'game over' for the likes of GLD.

It seems to me that for the time being it is still a viable way to play the gold market.  An orderly rise to $2,000 doesn't NECESSARILY preclude a corresponding rise in GLD.

The real risk doesn't set in until the great unwashed masses (or a sovereign or a giant bank) demands physical delivery and the scramble to discover ownership forces the issue into a real CONfidence problem.

Do we have a timeframe on this?  Early warning sign(s)?  Or is the concensus that we passed the tipping point and it could happen any day?

Inquiring minds want to know :-)

DoChenRollingBearing's picture

+ 1

It could happen very fast!  The best thing I can offer up is to watch (even if just a few minutes) the gold market every day.  The / eBay widget.  Check comments at ZH and  Call your coin shop (or whomever you buy your gold from) frequently.  <-- that is yet another reason to buy from your local coin shop, you get an information source...

And keep accumulating, even if slow.  At the end, it's all about the ounces!

FOFOA once in an email to me said that the Freegold process could happen tomorrow, or years from now.  He could not say for sure (who can?).   His guess was a year or two.  Seems reasonable to me.

therearetoomanyidiots's picture

Hard gold up 23 and change as of this moment.   Bouncing off support?


Re: FOFOA - Funny, I knew a guy in the late 80s that was hording gold, guns and cash, probably before reagan policies kicked in.  


That said, I am doing so now, guns, ammo and PMs.   Methinks this is different times...


Finally, thx for the advice on the local coin dealer. 

Catch-22's picture

GLD was my main vehicle for trading (cash flow not investing). Very liquid, the right amount of volatility, still responded reasonably well to technicals despite central planning interventions and based on physical (we thought) which provided the fundamental story.

 I’m afraid I can’t argue with Tyler… You know if that thing goes, it’s going to be after hours and after the great connected ones have left. Looks like it could be another MFG “all or nothing” kind of a deal, with massive amount of casualties.

Since I’m counting on small percentage gains, I must compensate with large amounts on trades to eek out a living. If I woke up one morning and they pulled a “Celente” on me, it would hurt. It would really hurt.

Risk/reward management, I’m forced to join the crowd who saw their vehicle disappear or destroyed, to the sidelines and wait for a major crisis to test those vehicles… 


Until then, enjoy the Holydays.