Jim,
This is the second post in as many days from Gross. Yes of course he is talking his own book, but I think his level of concern for the future of the USD/US debt situation is real….
CIGA David A.
Bill Gross says only gold and real assets will thrive in fiscal ‘ring of fire’
October 2, 2012, 10:58 AM
The latest round of quantitative easing made gold “even more attractive” and owning the metal should be considered as part of a diversified portfolio, analysts at bond giant Pacific Investment Management Co. said in a white paper posted Tuesday on company’s website.
Pimco founder and co-chief investment officer Bill Gross, in his separate monthly investment outlook also posted Tuesday, said only gold and real assets would thrive in a “ring of fire” of U.S. fiscal problems.
Gold GG GCZ2 -0.15% elicits black and white responses, the Pimco analysts said. Some investors “have a deep, almost religious conviction that gold is a useless, barbaric relic with no yield,” while others “love it” and see it as “the only asset that can offer protection from the coming financial catastrophe” always just around the corner, they said.
“Our views are more nuanced … Our bottom line: given current valuations and central bank policies, we see gold as a compelling inflation hedge and store of value that is potentially superior to fiat currencies,” the analysts said. ”We believe investors should consider allocating gold and other precious metals to a diversified investment portfolio.”
Other investments, such as Treasury Inflation-Protected Securities, offer an inflation hedge. TIPS are also less volatile than gold. History shows, however, gold’s high correlation to inflation and gold’s unique supply-and-demand characteristics may lead to attractive valuations, the analysts said.
Jim,
Thank you for describing how the dealers work. I read it 3 times, sketched it out, and understand it. It is very similar to Stewart Thomson’s up to 30% shorts strategy in allocating capital to markets.
Like you said, it is simple. And based on my roller coaster plop and wait involvement in the two markets over the last 7 years, I can see how effective the strategy is. Plus it can help with maintaining one’s sanity.
All your readers have to do is read and reread your article, understand the structure and tactics you have described, then employ them. It is that simple.
You also described currency managers as having the ability to manage POG from 3500 to 12000 just by adjusting their spread. You’ve mentioned the next real level up from 1650 being 3500, but I haven’t seen the 12000 upper range estimate by you before. Would the 12000 number be an unlikely potential number, or are you thinking that 3500 to 12000 will represent the likely future currency-managed trading range at some distant time? If it is a future range, there sure are a lot of opportunities first to get there, then to live in that range.
Thanks again,
CIGA Louis
Dear Louis,
Speaking fundamentally, $12,400 is the price gold would have to trade at to balance the international balance sheet of the USA.
That is the true function of gold, to balance the US balance sheet. This is the fundamental Angel of the gold price.
Jim
Hi Jim,
I wanted to share with you my story about Direct Registration of Shares. For me, it has been a story of taking baby steps. Back in the crisis of 2008 when you spoke up about this subject, I took physical paper certificate delivery of two stocks (GG and AEM). This was a token move since it was a small part of my portfolio, but at least I did something. I remained asleep till MF Global when you spoke again and this time did Direct Registration on two more stocks (one gold producer and one silver producer) to make a grand total of 4 securities in my own name at that time. Then after the recent court ruling, you spoke up to us again on this issue and I took action once again. I took direct registration of 4 more securities (2 gold and 2 silver producers). Now about 60 percent of my gold and silver stocks are in my own name as opposed to street name. I plan to continue to do this till I am 100 percent out of Street Name at least of my non-retirement accounts where the Lion Share of my holdings are.
My ROTH IRA only represents 10 percent of my silver and gold stock holdings so at least for the time being I am not too concerned about that one unless its value rises to the moon. The challenge recently with getting one hundred percent into Street Name is the selection of the right companies. I want companies that I can put out of my mind and know in 5 years let’s say when gold is king that they will still be there, their mines will still be in their possession, etc.
Picking the right countries has not been easy. It always seems to be a moving target. Even Quebec which may considered to be the gem of the mining industry may be facing much higher royalty payments due to the recent elections there. So many of my companies are in more than one country with the main counties being Canada, Mexico, and the United States with less in Latin America and west Africa.
Many thanks for your continued wisdom that you give us over the years. Some of us take your advice even if in baby steps.
CIGA Michael
Dear Michael,
At this time recommending anyone is high risk because there are so many crooks out there. I would suggest you speak and check out Camaplan before you give up on your IRA.
Respectfully,
Jim
Jim Sinclair’s Commentary
The gold price through the eyes of TA.
Greetings Jim,
Gold closed sharply lower today, retreating further from recent intermediate-term highs and moving down toward support at the lower boundary of the uptrend from May. In early October, we noted that the power uptrend from August was rising at an unsustainable rate and predicted that it would likely be followed by a potentially violent overbought correction. The anticipated correction commenced when power uptrend support was violated last week and the decline has developed as expected since then. Technical indicators are bearish overall on the daily chart, strongly favoring a move down toward support at the lower boundary of the uptrend from May.
As we note often, short-term price behavior only has meaning when it is analyzed in the proper context afforded by the long-term view. Although gold prices have moved violently lower during the last two weeks, the consolidation formation on the weekly chart that we have been monitoring since early September continues to track the bullish scenario that we outlined at the time, favoring an eventual resumption of the long-term uptrend.
With respect to intermediate-term cycle analysis, prices have moved lower following the formation of the second half cycle high (HCH) of the cycle from May.
The next intermediate-term cycle low (ITCL) will likely develop sometime during the next three weeks. If the forthcoming ITCL forms well above the previous low in May and it is followed by a strong move above congestion resistance in the 1,795 area, a breakout to new all-time highs would become highly likely in late 2012 or early 2013. Therefore, although the short-term outlook is currently bearish, the secular uptrend may be preparing to resume, so it will be important to monitor price behavior closely during the next several weeks for the next signals with respect to long-term direction.
Best Regards,
CIGA Erik McCurdy
Senior Market Technician
Prometheus Market Insight
www.prometheusmi.com
Dear CIGAs,
The following is a question and answer segment on today’s eblast, "How A Metals Dealer Works."
Question: In your posting "How a Metals Dealer Works", you mention the spread trade the metals dealers have. Is that the spread between buying physical from the miners/refiners and the Comex?
Answer: It is selling on the Comex or any forward contract on any exchange.
Question: When they take their longs off, do you mean that they are selling their physical into the market?
Answer: Wherever the longs are and in any form they are in.
Question: Given the size, that seems a lot of risk exposure as they are becoming naked short.
Answer: When you are crashing the market you take the exposure. These guys you all think are idiot shorts are not. They are geniuses with only one purpose: to pick your pocket to make money. Do you really believe that these great names hire jerks as traders and sit out horrible position? It is you who are mad.
Question: Are you arguing that this risk is mitigated because they know that if they can push gold through some stops, they are confident that they will be able to replace the physical they sold with (i) either more physical or (ii) futures contracts by those that are puking them out?
Answer: They are whacked out wild risk takers utilizing spreads to camouflage their tactics.
Question: That seems a little risky if the market decides to absorb the gold they are selling and push it higher – that would result in them getting short squeezed, correct? Is that what happened when Sinclair Global Arbitrage advised the metals dealer to take off the short side of their 15,000 contract spread trade? I was 35 years old and indestructible. I still believe me.
Answer: It was fish in a barrel and yes I risked bankruptcy as well.
Question: If so, then who has deep enough pockets and the guts to do that in today’s market?
Answer: Deep pockets? Have you never heard of margin up the the ass?
Question: I could see a central bank doing it, but it seems unlikely that a metals dealer would do it (because they would be fighting the rest of the metals dealers community – i.e.. it would take a lot of size, would ostracize them from their peers, and would break the profitable cartel that the metals dealers enjoy).
Answer: It is done conspiratorially and no dealer is fighting any other dealer. Remember I used to be one of these guys as a kid and they are my family relations. I had a billion in position when I might have had a few million behind it. Risk was my food. I could not live without it. I was born Jesse Seligman
Jim,
If banks can control the market downward and can do just the opposite, why does it seem they are more interested in the downward side? Is it from collusion with government that does not want gold to go up? And if so, how do they lose control? Just trying to make sense of this…
Thanks, as always,
CIGA Kirk
Dear Kirk,
Here is where you miss the point completely. The market price of gold has risen from $248 to the present $1720. This game may appear when it happened as if the gold banks are wild ass bears, but they are not. They are grabbing $50 and $75 today where if I made $0.50 I was happy. They use fear and MSM to reduce the risk they do take when they open the spread.
If I use any words like spread that you might not understand on www.jsmineset.com, www.investopedia.com has a financial dictionary available to readers on it.
Regards,
Jim
Hello Jim,
Do you think there is any place in the world that will be better to be when our financial system collapses?
We hear that Ecuador is the cheapest place to retire, but they use the USD. Won’t the same thing happen to them as to us as the dollar declines? Would an Asian country be a better place to be financially?
Thanks much,
CIGA Beverly
Beverly,
You have to be happy with your alternative location. I like India and Tanzania. I have homes and family in both locations.
Semi rural India costs about $100 a month to live once you have your home. Africa is higher but not a lot once you have established yourself and are willing not to live like the average Masungu.
Travel to the possibilities and try them. The worst thing would be to hate where you decided to go.
Jim
Jim,
Thanks for your recent post about the metals dealers and how they make their money. You have saved my family and many here in California from economic destruction. Spread trading is logical and makes perfect sense. The question I have is how do derivatives and the amount of worldwide debt there is now, along with all the accounting fraud, factor into the equation? Were these factors around in the late 70′s?
CIGA Kyle
Kyle,
What you asked functions into the WHY of gold at $3500 or higher.
Trading is a game. Spread trading is like being a professional gambler in Las Vegas. The two do not speak to one another.
The fundamental is the long term determinant. The trader’s is the price of gold determined from now to the close. The trader influence in the long term will be seen as a pimple on the ass of an elephant but they sure run the gang’s emotions wild.
We should all enjoy our weekends. I am going to the Sheep and Wool festival.
Many gold people will not sleep this weekend because they do not understand the game going on. You should now understand. Therefore you should enjoy your weekend as I will.
Regards,
Jim
Dear Jim,
What is your dream?
Arlen
Dear Arlen,
My dream, when everyone is on the other side of this drama and in one piece, is an isolated one room cabin in Alaska on a lakefront.
Jim
Jim,
Today’s article responding to your reader about how spread trades work was great. Readers would really appreciate a simple visual trading example on how it works. What can the average retail investor do to counter these spread trades other than going long and holding the position in allocated metal?
Regards,
CIGA Harold
Harold,
Simple. Sell a little on every rhino horn. Buy a little on every fishing line
Be happy.
Jim
Hi Jim,
You wrote a great piece in your last article. I am a novice gold investor, and excuse me for my lack of knowledge in how the gold market works, but I am hung up on how exactly the gold market gets manipulated. I have read many articles suggesting the Fed, gold bullion banks, short traders, etc. Is there one or two driving forces that are keeping the prices low, or at least, running the prices through a slow deliberate manner? I understand that traders and banks are constantly positioning themselves to profit from short term trades, but are these trades enough to drive the gold prices, or is there a mix of actions going on that affect the price? I would appreciate your thoughts on this, as I am sure you have written about this many times, and I am just learning the basics!
Thanks,
CIGA Steve
Steve,
Today I taught you how it is really done. Call on me anytime you need help. I am here for you.
Try me so I will prove it.
Jim
Mr. Sinclair,
Thank you for posting, and sharing with all of us, your latest missive concerning the great "arb." I too was a dealer of sorts (options market maker at the CBOE for almost 20 years). I have one question: Wouldn’t it be prescient of the actual miners to take product off of the market and hold some back? If enough producers could collectively do this, wouldn’t this put a chink in the armor of the dealer’s need for physical supply to balance their spread?
Thanks for all that you do to help/inform your followers.
CIGA Tim
Tim,
Yes, absolutely.
The problem is simple. Management or the board of gold mining companies are Rock Heads. The only value they attach to gold is the real price they mine at, not the accountant fiddled higher price.
The biggest bears on earth from $248 to $1200 was the major gold producers short of gold on their OTC derivative sales. The entities who have no understanding of the gold price or even a feeling of kindred-ship with gold price, are the major gold producers.
They are too busy living off the spoils to think of the gold investors.
They are too busy living off the spoils to think about the shareholders.
They will never do anything to help gold, ever.
Their only thought when gold rises is how they can increase production. Now when they talk they pay gold respect, but not when they talk privately. Certainly not when they are trying to increase production to sell it as fast as they can.
It would be breaking a long standing tradition of the Rocks & Humps Society to help the gold price.
Regards,
Jim
Jim,
We will see if FERC has more backbone than the CFTC.
CIGA Craig
Craig,
FERC, yes a regulator. I suggest that you do not hold your breath waiting for a serious, by the rules, liquidate positions sanction to come down.
Jim
JPMorgan apologizes to power regulator for misleading information
By Jeanine Prezioso
NEW YORK | Thu Oct 18, 2012 4:00pm EDT
JPMorgan Chase & Co apologized to the U.S. energy regulator on Thursday for providing misleading information about California electricity markets, saying it was inadvertent.
The bank also urged the U.S. Federal Energy Regulatory Commission not to follow through on a threat to suspend its market-based rate authority, which would force it to sell power at a significantly lower rate and probably would drive it out of the market.
The regulator has said the bank broke the law by submitting misleading information to the commission and the California grid operator.