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50sQuiff

The price of gold is going to crash

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50sQuiff, I have a spreadsheet listing all my assets and transactions (of which most are bullion). I track prices in USD, EUR and GBP. It has become a custom to leave the prices unchanged whenever I look at the sheet and prices have gone down meanwhile. Why? Well, they're always turning around and then go beyond their latest high. It has been like this for a decade now. :)

 

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"The price of gold is going to crash."

 

Indeed, it has rallied to near a downtrend line on very light volume

 

GLD / Gold etf chart ... update : GLD-vs-SLV : SLV

 

53346708.gif

 

SLV/Silver is even weaker, and some may have noticed that I have now moved to a somewhat Bearish stance in my (aggressive) Alternative Portfolio (AP#1)

 

Beating B&H update: http://tinyurl.com/BeatingBH

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"The price of gold is going to crash."

 

Indeed, it has rallied to near a downtrend line on very light volume

 

GLD / Gold etf chart ... update : GLD-vs-SLV : SLV

 

53346708.gif

 

SLV/Silver is even weaker, and some may have noticed that I have now moved to a somewhat Bearish stance in my (aggressive) Alternative Portfolio (AP#1)

 

Beating B&H update: http://tinyurl.com/BeatingBH

Is the volume typical for a continuation pennant?

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Is the volume typical for a continuation pennant?

 

I am not worried shorter term, with the events of the 9th of December coming soon and all the printing that is going to occur one would be mad to bet against gold now.

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Will it crash upwards or downwards?

"The price of gold is going to crash."

Indeed, it has rallied to near a downtrend line on very light volume

 

GLD / Gold etf chart ... update : GLD-vs-SLV : SLV

 

72230430.gif

 

Hedging the Fall - you can look at these

 

GLD-$169.82 / Gold etc : 17-Dec-$170-puts : $3.80 - $3.90

UGL-$099.64 / GLD- 2X : 17-Dec-$100-puts : $3.10 - $3.60

So far, so good:

GLD-167.32 -2.50 / -1.47%

UGL-$96.71 -2.93 / -2.94%

 

I think Mr.GF was confused about whether a "Crash" (or a "slide" for me) was up or down.

Does yesterday's move help to lift the fog?

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I think Mr.GF was confused about whether a "Crash" (or a "slide" for me) was up or down.

Does yesterday's move help to lift the fog?

Wake me up at $1,000 so I can rent one of these here.

 

151813.jpg

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I have had the reply from James Turk now, so here is his thoughts on 50sQuiff's original question at the start of this thread in it's entirety;

 

Pixel8r

 

I agree that the paper gold price will separate from the physical gold price. We already see examples of that happening. Here are two:

 

1) Notwithstanding the disadvantages and costs of its closed-end fund structure, Sprott Physical Gold Trust (PHYS) trades at a premium to GLD, which trades at the so-called "spot price", which is really the price reported by LBMA market-makers. Because of audits, we know that PHYS has the metal (which can be redeemed by shareholders), while there are on-going questions about GLD (which does not allow shareholders to redeem their shares for metal). In short, PHYS is closer to physical metal than GLD, and their price reflects this reality.

 

2) The price of Dec'15 silver futures is below the the Comex front-month price of silver, meaning silver is in backwardation. In effect it means that market participants are not buying Dec'15 even though there is a low price on offer. Paper silver in this case is much cheaper than physical silver (plus you can avoid the storage costs from now until Dec'15 and other than margin requirements, have your funds available until you take delivery in Dec'15), but buyers are nonetheless not enticed.

 

I think the above examples indicate how the market is likely to evolve. The difference between the LBMA market-makers spot price and real physical metal will likely widen some more, particularly as the financial markets become distressed - which has been happening now more or less since the Lehman collapse. Recent evidence of this distress is last week's extraordinary move by central banks to provide extra liquidity to prevent one of the major French banks from failing.

 

Where I take exception to the comment below is how events will unfold and whether the LBMA spot price will "crash". That event would happen in my view only if the high leverage employed by the LBMA market-makers totally eroded confidence in ALL of these LBMA market-makers with the result that none of the normal market participants would be willing to accept any LBMA member's counterparty risk. That would be a rare event indeed. But if enough of the banks failed so that no one would accept the counterparty risk of any LBMA member (not likely but it is theoretically possible) then it is entirely possible that the LBMA market could disintegrate, which gets to the heart of the question below.

 

It is worth noting that the LBMA does not provide a price feed like Comex. The LBMA is not a market, but rather, just an association of banks and other companies. This is an important point. The most likely scenario is that one LBMA member might get into trouble, meaning no one is willing to buy/sell metal with it because its counterparty risk becomes too great. Thus, its price feed will be disregarded by other participants.

 

GoldMoney continues to use a so-called LBMA price because every day we are able to buy physical metal or on those rare occasions when we need to, we can sell physical metal to an LBMA member, at its reported asking price (when we are buying) or its reported bid price (when we are selling). The moment that GoldMoney is no longer able to do so, then we will stop using that LBMA member and begin using the price at which we can actually buy/sell from another LBMA member. We use a process in which we filter out bids/asks we believe to not be relevant. As an aside, GoldMoney most often purchases the metal it uses from refiners, not banks.

 

Many LBMA members and non-market-making members provide price feeds, which we use. The key is that we are always striving to provide a price as close as possible to the last trade of physical metal.

 

Lastly, because the future is unknowable, it is impossible to predict the winning strategy. Thus, we have to make an informed choice, but every choice has advantages and disadvantages. My recommendation therefore to mitigate the risk of owning physical metal has always been to diversify your metal holdings in as many ways as practically possible. For example, own some coins or small bars, but also own some metal in a country(s) where you do not live, which of course is one of the services GoldMoney provides.

 

Please feel free to go ahead and post my comments above.

 

Regards

James

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I have had the reply from James Turk now, so here is his thoughts on 50sQuiff's original question at the start of this thread in it's entirety;

 

Good on James for replying and acknowledging the issue. What a gent. He's right - we cannot know the future - so we should diversify. I think GM has a big role to play in that regard, even though I'm more comfortable with physical. If gold has a major correction this year or next, I will most likely buy some GoldMoney for the international liquidity.

 

It will be interesting to see how the physical/paper dislocation pans out amongst the various LBMA member banks. It sounds like as long as one of them continues to make a market in physical gold at a real world physical price, GM will be fine through the transition or crisis. If - on the other hand - there is an epic systemic crisis that halts trading at all bullion bank participants, GM may run in to trouble temporarily.

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