Gold, Precious Metals Collapse

10 posts

President Camacho


President Camacho

Very interesting take on this:

This Gold Slam Is A Massive Wealth Transfer From Our Pockets To The Banks

Niccolo and Donkey
Team Zissou
That's what jumps out at me. These are derivative instruments, not the physical stuff, and there is no reason they aren't as leveraged as banks are with customer deposits and investment houses are with MBS's (which are a seemingly bottomless pit of leverage--$40 billion with a B/mo. to keep afloat). It's not a transparent market and all sorts of manipulations are possible. We schmucks have no idea what's going on and in truth, neither does the 30-yo fund manager who's managing your metals-401k account from the basement offices at Fidelity. The percentage of a portfolio devoted to metals should be only to get the physical stuff. Fill your bathtub with it and loll about like Scrooge McDuck.
President Camacho

What's interesting is that months after surveying the damage done by the short, the banks can collude to buy up the vastly-discounted metals which the herd of retail investors has just dumped.

So they can make a killing on the way up as well.

As the article notes, this process of pumping up and chopping down metals and other commodities can be repeated almost infinitely, because unlike shorting a stock, gold cannot be "killed". It will always bounce back, and nobody knows when to time piling on the bandwagon better than the big institutions.

In the meantime, the killing of gold has served its purpose in spreading the notion that inflation must be "under control", and that instead of hedging your position with cash and precious metals, retail investors would be better off piling into equities.

I predict that because of this, we will see a rally in equities through at least the fall, followed by a sharp pullback.


What about the tungsten bubble?


With commodities taking hits and market indicies reaching new highs and QE being slightly above typical expansionary policy, I think we're back in the "happy days" again i.e. inflationary boom. It's like 2005 all over again.

Differences this time in comparison to the tech bubble and housing bubble:
1. Public debt and deficit are at insane levels
2. Higher, persistent unemployment
3. Comparatively huge corporate profits
4. College graduates are hardly participants in the economy.

Niccolo and Donkey
Commodities taking hits indicates lower demand which in turn means a sluggish/recessed economy, with China slowing down.
That part of the story. People were primarily buying precious metals as a hedge against inflation and against financial instruments of any kind. With less fear, fewer people buy into metals.
Niccolo and Donkey
Irrational Exuberance?