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What The Gold Bubble Says About The Nature Of Money
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Maybe the answer for gold’s rocket rise lies not in the usual market factors, but in Trump’s unpresidented behaviour. And, once it reached what was an understandably unstable high, it could be toppled by small things
When Shanghai’s markets open later this evening, it should be Chinese investor’s first chance to respond to the action we saw here on Friday. We should see some more fireworks there.
We have heard it said that Bitcoin was the new “digital gold.” It is not, and we are now seeing paper gold become the new Bitcoin. More “investors” are listening to social media than they are common sense. Physical gold and silver markets are largely unregulated and the integrity of dealers varies from vendor to vendor. I have heard that some shops are currently paying $15 under spot for silver, and that is if they are buying at all as they are mostly now out of cash reserves. That’s about a 15% haircut at current prices, and minimal to no liquidity on the sell side. I don’t know about physical gold, but I would not be surprised to hear things are somewhat similar, and most paper gold cannot be redeemed for the real thing without heavy fees being involved.
Such a large difference to the spot price, sets up an opportunity for ordinary investors.
Go to your silver dealer and offer to buy some physical silver. Buy about one futures contract worth. You must get a favorable price. You’re the one who’s now getting the spread (or something close to it). If the dealer has lots of sellers, beating down his door, he won’t mind. He has no risk because he has a seller right there waiting to take the risk off him.
Then buy one deep in the money put, on silver futures, about 3 months out.
You won’t pay a lot of time decay on that put option, because it’s deep in the money. But you will tie up a lot of capital.
Now you are hedged. You don’t care if the price goes up or down.
You have to clear out of your position within about 3 months.
Your cost of carry is the time decay on the put, and the capital tied up in the put, minus whatever spread you got on the silver from the dealer.
Eventually, the refiners will be able to take all this excess silver.
They will convert it into pure bars, and it will end up, on the commodities exchanges, as satisfaction, to a futures contract.
So ultimately, all this excess silver, will be bought up and become part of the futures market.
It’s just a question of time. The refiners need time to process all this excess silver.
I think 3 months is about the amount of time that you would need. Normally an acute squeeze, would not last more than 3 months. You can always roll that put forward if you really needed to. But you hope to exit within about 3 months.
I think it’s a reasonable assumption, that every silver dealer, and every gold dealer, in the country, knows about the futures markets.
They, already, are hedged.
They don’t really need to charge this $15 spread.
The problem for “ordinary investors” (meaning not options or futures traders) is trying to sell physical silver at the peak without being told “sorry,” or having to take a 15% haircut. Some of those poor bastards have been holding large amounts of bars and rounds since 2012 hoping to turn a profit, and now they are being shut-out with the excuse that the wholesalers and refiners are backed up. As Mr. H has said, it’s a circus, and it always has been.
H-Man, twas a good, but a really good trade.
It is so clear. Trump is Crazy and incredibly powerful -weapon-wise and zombie-flunky-wise. Biggest army, biggest Navy and biggest airorce > And Also ICE. He can take anything away from you. If you are a government and responsible for your country or if you were a multi-gazillionaire. wouldn’t you do anything to keep your money away from Trump. HE CAN’T TOUCH GOLD. All other giant piles of assets can be mauled by Trump as they are all dollars: U.S. Treasuries, the dollar itself or U.S. equities (75% of all equities are U.S.) Gold is the only one beyond his reach. Well – I think it it. How did he let that one get away???
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HE CAN’T TOUCH GOLD
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oooh, but you know how much he wants to.
And at this juncture I would not be surprised if he tried to.
He just loves gold, more than anything else. Just think of the “decorations” on the walls of the White House or Mar-a-Lago.
This situation is made of so many layers of irony, it resembles a mille-feuille of the absurd
GOLD is physical and if it resides in a vault in Hon Kong or Switzerland he can’t get it. I agree that he will make it illegal to ship it out of the U.S. He also sees himself as smarter than FDR and will make it illegal to own it because he neds to control it.. That way he can conrol rates. It sucks to be here now.
Milles feuiles are nice – don’t ruin them for me. The man will stop at nothing.