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Lepista

Gold strategy in the current economy

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.............Why is it so difficult to understand that gold is just another currency?

Because the difference between money and currency are misunderstood . Add to that confusion that gold is both a currency, and a commodity.........and you have the equivalent of chimps with keyboards.

..._

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Because the difference between money and currency are misunderstood . Add to that confusion that gold is both a currency, and a commodity.........and you have the equivalent of chimps with keyboards.

..._

Let me put it this way: Backwardation in gold might try to tell us something, potentially something significant. But it has nothing to do with the existence of arbitrage opportunities that are not being followed through. And, yes, one cannot just apply typical supply-demand commodities analysis to gold, at least not without taking the huge stockpile and basically non-existing consumption into account (what kind of "commodity" is like that?). The chimps with keyboards make me chuckle, but I do have some sympathy for people who fall into Fekete's intellectual trap, because, if you did not study the subject elsewhere, it might be difficult to spot his logical fallacies.

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Let me put it this way: Backwardation in gold might try to tell us something, potentially something significant. But it has nothing to do with the existence of arbitrage opportunities that are not being followed through. And, yes, one cannot just apply typical supply-demand commodities analysis to gold, at least not without taking the huge stockpile and basically non-existing consumption into account (what kind of "commodity" is like that?). The chimps with keyboards make me chuckle, but I do have some sympathy for people who fall into Fekete's intellectual trap, because, if you did not study the subject elsewhere, it might be difficult to spot his logical fallacies.

​I don't want us to get off on cross-purposes with misinterpretation so I will make it clear that what I think I am saying here is that we saw a negative basis, which is not the same as backwardation. At almost $1 /Oz of potential profit in August'13, using a good amount of leverage can make a profit in this situation. (I know because I have done it!) So, I think I can say that what I am talking about IS arbitrage. What you are talking about is the time-value vs libor, which in a non-margin situation I agree would erode your 'profit' over the duration of the spot-sale/futures purchase, no?


And december gold is trading at almost a dollar less than spot.

spot SELL 1286.6
dec BUY 1285.8

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..........one cannot just apply typical supply-demand commodities analysis to gold, at least not without taking the huge stockpile and basically non-existing consumption into account (what kind of "commodity" is like that?)...........

I firmly believe that you can look at the supply and demand effect on gold price. Currencies are bought and sold as any other commodity is, gold is in that same world.

It is also used in fabrication, which has it's own supply demand equations.

What you regard as non existent consumers are those who put gold in a different hole in the ground, it is effectively out of circulation, 'used up' so to speak. Gold can be regarded as schizophrenic if nothing else.

What is also missed in the backward arguments is the cost of arbitraging. If you can't put the money up front, you have to do it all on margin.........and that ain't free.

..._

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​...

If you did this (sell spot August 1286.6, buy December 1285.8), you made no arbitrage, because you missed out on the interest that you could have made by leasing your gold out between August and December. Had you leased it out, you would have made the same "profit" as in your faux arbitrage. This is the whole point: you can't just ignore the interest that you - for whatever reason - decided not to take. Similarly, it is not an arbitrage to get 0.1% interest in your bank account, only because you usually just store your money under your pillow.

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If you did this (sell spot August 1286.6, buy December 1285.8), you made no arbitrage, because you missed out on the interest that you could have made by leasing your gold out between August and December. Had you leased it out, you would have made the same "profit" as in your faux arbitrage. This is the whole point: you can't just ignore the interest that you - for whatever reason - decided not to take. Similarly, it is not an arbitrage to get 0.1% interest in your bank account, only because you usually just store your money under your pillow.

at 50, 100x (or more) leverage you can make several percent, not fractions. BUT at the end of the day, it is nickels and steamrollers! Cost of funding on margin has to be factored, too. I'd generally prefer to have the ounces in the safe. Buy and hold.

BTW I agree with you inasmuch as leasing your gold can only be done 'fully funded'. Then, there is no 'profit'. And you might also argue that any profit from this deal involves counterparty risk and leverage and thus is not really a true arb. There are risks.

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1240 was and is on the cards, as stated here last week. Doesn't alter trend unless breaks through sustainably.

Lots of people will be crying sell now. Didn't see many crying buy at 1150.

Edited by Killer Bunny

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at 50, 100x (or more) leverage you can make several percent, not fractions. BUT at the end of the day, it is nickels and steamrollers! Cost of funding on margin has to be factored, too. I'd generally prefer to have the ounces in the safe. Buy and hold.

BTW I agree with you inasmuch as leasing your gold can only be done 'fully funded'. Then, there is no 'profit'. And you might also argue that any profit from this deal involves counterparty risk and leverage and thus is not really a true arb. There are risks.

By the way, Fekete's argument assumes no counterparty risk. But it is true that increasing risk of failure-to-deliver increases the GLR and decreases GOFO, so it can push gold into backwardation. But (riskless) backwardation does not make arbitrage possible.

What you do with this strategy that you described is simply pocketing the gold lease rate, that you would otherwise (in a simple buy and hold) forgo. So, lending your gold for interest or selling it spot and buying back forward is the same thing. It is a profit on top of the ounces, just as bank interest is a profit on top of the deposited money (here you lend money to the bank, in the other case you lend gold to the "bank" i.e. "deposit" it). Arbitrage, however, would be a certain profit beyond the riskless interest rate.

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I think that the only thing that could help gold now is the Ukraine situation getting out of control.

Politicians like their Press conferences where they can cite victory so I imagine that Putin will give Merkel and Hollanded their moment in the sun this week - and gold will probably plunge on 'peace in our time'.

Sometime later, within weeks or months at most, I suspect Putin will then move to grab a bit more of Ukraine. At which point all bets are off geo-politically?

Seems to me that the gold price is driven by fear.

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I think that the only thing that could help gold now is the Ukraine situation getting out of control.

Politicians like their Press conferences where they can cite victory so I imagine that Putin will give Merkel and Hollanded their moment in the sun this week - and gold will probably plunge on 'peace in our time'.

Sometime later, within weeks or months at most, I suspect Putin will then move to grab a bit more of Ukraine. At which point all bets are off geo-politically?

Seems to me that the gold price is driven by fear.

Do you have any evidence of this correlation?

I think (and hope) that gold doesn't need people dying for it's price to rise.

My guess is that it's driven by peoples' fear of their own governments (printing more paper in the west, confiscation of wealth in some of the rest).

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as this rather crowded looking trade for falling real yields dissipates gold will embark on its next lurch lower.

Oil looks to have started to stabilise.....

ECB QE may be the catalyst (counter intuitive)

Enjoy the current bounce .....it may not last long.

Bingo bongo. Longs never learn. Nailed it to the day.

http://stockcharts.com/h-sc/ui?s=$GOLD&p=D&yr=0&mn=1&dy=0&id=p85227453646

Edited by R K

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Do you have any evidence of this correlation?

I think (and hope) that gold doesn't need people dying for it's price to rise.

My guess is that it's driven by peoples' fear of their own governments (printing more paper in the west, confiscation of wealth in some of the rest).

A few thousand years of war, misery and death.

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1240 was and is on the cards, as stated here last week. Doesn't alter trend unless breaks through sustainably.

Lots of people will be crying sell now. Didn't see many crying buy at 1150.

So 1240 has been breached and partially recovered on the same day. This is the kind of move a bull would want to see.

To confirm needs to see rising above 1240 Monday or Tuesday, probably.

More likely it will.

From 1130 in November there has been fear of PMs. Cue Mr Burns...

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A few thousand years of war, misery and death.

Claims like this surface regularly on goldbug sites, and personally I think it's a bit sick - especially when the bugs are hoping for mass death in order to increase the value of their portfolio.

Here is a 30 year gold price chart:

monthly_dollar.gif

The Vietnam war ended in 1975. What were the huge increases in war, misery & death in 1978 and 2005?

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Just bought some gold sovereigns, boy was it hard work!

I wanted to buy Victoria, the Jubilee head and Bullion by Post had a good price for these. Anyway, I wanted to buy 10, partly due to a price reduction at that level, but my payment card got rejected. The bank texted me if I wanted to make this payment. I went through the procedure and said yes. Tried to purchase again, rejected! Now I phone up, they apologise and go through the process over the phone then tell me to wait 10 minutes before purchasing.

I wait 10 minutes, I tried to get my Victoria Jubilee head coins. Sold out! I look on the website again see what else they have and I decide that the Victoria old head although not as good value as a Jubilee head still worth a punt. I fill my basket up, I enter my details, payment rejected!

I ring the bank up again. They apologise, I go through the whole security process again and this time they stay on the phone while I try to make purchase. But of course 10 Victoria old head coins are not available now, only 4! Not only that but the reduced amount means you have to pay a higher price, was £212 now £221! I buy them but wasn't happy and told my bank so. They gave me £50 for my troubles. I wanted gold and I get fiat! :P

It's been a while since I bought any gold coins online and it is the first time that I've used Bullion by Post. Has anyone else had trouble making online gold purchases lately?

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Tried to buy a couple of Britannia's last week from Bullion by Post. I had exactly the same text message rejection from my bank (Lloyds) I have used the bank card for Bullion by Post previously. After two transaction failures, the verification system was not allowing the transaction apparently, I rang the company. They could see the failed transactions from their end and suggested that I paid via a bank transfer and held the price at the original transaction time.

In future I will call them again as they were incredibly helpful, and the bank transfer method is a lot less stressful way of trying to spend your own money.

Not sure that would have helped me much after they had sold out of the coins I wanted. :( But definitely will call them instead of the bank in future!

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And back to 1240.

As to what happens from here, no idea. The market will decide. If gets above 1250 today/tomorrow and stays at close then bullish.

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Er... I didn't say we were going to 1300.

I said looking at the chart it will be difficult to break above 1300 if/when it gets there. But if it does - very bullish

clearly struggling right now. can find support at 1220. on verra

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You really think so

I think we will see 1200 before 1300

Fancy a side bet

However as I said 'If gets above 1250 today/tomorrow and stays at close then bullish.'

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Not sure that would have helped me much after they had sold out of the coins I wanted. :( But definitely will call them instead of the bank in future!

I bought some sovs from coininvest some months back. Used the bank transfer method. No problems at all and prompt delivery. I've just had a look at their home page tonight; on there they list the 'best sellers', one of which is the gold Greek 20 Drachma. Did not even notice them selling Drachma in the past, now a best seller.

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  • 397 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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