Gold moved higher today with the dollar up and then flat. Silver though was a stronger metal today moving higher from the beginning of the day before flatlining. Silver moved up noticeably with platinum and palladium. Why was gold a laggard today? I imagine there was more money involved in keeping it at bay through the paper derivatives market.
Physical gold doesn’t paint the complete picture of what goes on with gold. It is a small fraction of what is traded at the COMEX and most everyone knows this. But what most don’t follow is that you can’t fight big money. At least not yet. At some point the holders of physical will have the last laugh at those who push derivatives of gold around at their trading desk with a keystroke. These traders probably have never held an ounce of gold in their hand in their lives let alone saw what an American Eagle looks like. You can also bet they don’t care too. But at some point in the future they’ll press a button to sell their paper gold and there won’t be a buyer for it.
Paper gold is a derivative of the real thing and there must be a party on the other side of the trade to sell it. Whereas with physical gold you can take it to a coin shop and sell it for the scrip of the day at any point in time and then spend that scrip. You can’t take a share of GLD to the coin ship and expect to get real gold for it or the scrip of the day. Yes, today you can find a willing buyer. But what guarantee do you have of that tomorrow?
When I begin to use this type of language you’ll see I am thrown into the conspiracy camp and discounted because of the vast amount of liquidity that GLD has today. Naturally I understand this and of course tomorrow you can sell your GLD and get the scrip of the day put into your account for it. But as you’ll see in the future, there will be many, many assets searching for a bid from someone, anyone, that will buy these assets from them. That’s why my next book is called “Illusions of Wealth.”
The thing is, most of you who invest really don’t know the real liquidity of what you have. You think you have money in the bank but if many of you tried to withdraw from your accounts on the same bank an amount over $10,000 you may not get it the same day. Banks only keep a certain amount of cash on hand. They naturally don’t expect a bunch of people withdrawing from their account at once.
Recently we saw a run on a $788 million junk bond fund Third Avenue when investors decided they didn’t want it any longer. To protect the fund from selling assets at a loss they had to freeze withdrawals. They did allow systematic withdrawals thereafter but they had to stop the bleeding.
The next day a hedge fund Stone Lion suspended redemptions in its oldest fund.
This was just when the Fed was raising rates because all was well in the economy, remember? Now we have about 1300 points down on the DOW to start the new year, the worst ever start to the markets, and you are sitting there with no gold more than likely. Why? Are you waiting for the price to fall before you buy, or to rise? If the answer is rise, then you’ll probably never buy. You’ll keep telling yourself over and over, the price has got to come down. When it breaks to a new high over $1,920 you’ll say I should have bought when it was $1,095 but I can’t buy at an all-time high. When it breaks $5,000 you’ll say I should have bought at $1,920. This is the psychology of your average investor.
Now is the time to buy physical gold or dollar cost average into a position. Everything else is just an illusion.
Related posts
About Doug EberhardtDoug Eberhardt is a 28 year financial services veteran and precious metals broker selling gold and silver at 1% over wholesale cost. Doug has written a book to help investors understand how gold and silver fit into a diversified portfolio, how to buy gold and silver, and what metals to buy. The book; “Buy Gold and Silver Safely” is available by clicking here Contact phone number for Buy Gold and Silver Safely is 888-604-6534
Disclosure:
Commodity Futures Trading Commission Futures and Options trading has large potential rewards, but also large potential risk. You must be aware of the risks and be willing to accept them in order to invest in the futures and options markets. Don’t trade with capital you can’t afford to lose. This is neither a solicitation nor an offer to Purchase/Sell futures or options. No representation is being made that any account will or is likely to achieve gains or losses similar to those discussed in this outlook. The past track record of any trading system or methodology is not necessarily indicative of future results.
All trades, patterns, charts, systems, etc. discussed in this outlook and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author.