In case you missed it... early last week The Reformed Broker detailed the incredible amount of gold that hedge funds (in this case Paulson & Co.) have accumulated in a very short period of time:
John Paulson of Paulson & Co, the legendary hedge fund manager who made tens of billions betting on the mortgage crisis between 2007 to 2009, likes gold. He really likes it. He likes gold more than a friend.
To most market participants, this is not news, but here’s something you probably didn’t know: Paulson owns more gold than several major countries! Combined!
Retail investor (and more recently this hedge fund) support has made gold a one way bet for much of the past 6+ years. Thanksgiving's Dubai debacle however provided a glimpse into how quickly this may potentially all come to an end. Per the FT Alphaville:
Gold had at one stage dropped as much as 5 per cent as it responded to safe haven flows into the dollar. The precious metal has since recovered to trade about 3 per cent lower at $1,155.80.Don't fret... gold has snapped back / stabilized and now is once again within striking distance of new highs (chart below per Kitco).
Commenting on the sell-off, Davies — who had moved his fund to its maximum 50 per cent under weight gold position:“It happened so quickly, I’ve never seen a quicker paper liquidation in gold ever.”
Regardless of what is or is not a justified price for gold, the only thing that matters is the next price that a buyer or seller is willing to transact. And while I continue to expect to see a one-sided trade, when that one sided trade ends, it has the potential to get real ugly, real fast (though I think we are still a long ways away) as this "tonnage" hits the market.
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6 comments:
Can you say GOLD BUBBLE?
Gold has historically traded in tandem with other commodities but has become completely unhinged at this point.
Grow a pair - DZZ - Double Short Gold ETF
what's you timing of the dive? what happens if it hits $2000 before $300?
Can you say WIPED OUT?
Go ahead and short gold and have your head handed to you.
There is a significant difference between a government entity owning gold and a private one. It's a question of financial obligations and a need for liquidity. A small panic among the hedge funds can result in a collapse of the price of gold much in the way oil dived from about $150 to under $50 within a very short span of time.
agreed. as i've detailed before, i am currently long, but via options (vol is expensive, but i believe underpriced).
actually greenspan and bernanke are not entirely wrong - today, no one can say whether gold is in bubble territory or not, the opinions are all across the spectrum. something more severe than dubai can (and WILL) happen, and trigger a multiple 5% correction, and the bubble is burst as paulson's lucky bet comes to an end; today, Japan may decide to print 10 trillions more, and all markets double, and gold bugs would be vindicated. take your pick.
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