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Did Bankers Deliberately Crash MF Global to Crash Gold and Silver Prices?
While I don't doubt the veracity of the article, I've always pretty much taken this sort of market 'manipulation' for granted. I don't see it as any grand conspiracy, as much as the nature of the beast. In actuality, you can insulate yourself from this sort of thing by avoiding 'paper' bullion options like GLD and SLV.
Your first choice should always, always, always take possession of the physical metal itself. Second choice is to invest in the mutual funds that hold the stocks of mining companies. This is 95% of the precious metals mutual funds. Lastly, if you really must own some paper bullion, go with CEF.
I personally believe this argument that physical gold will be worth more when paper gold is decimated is a gold bug BS. It is a myth. It is a fallacy created a false sense of security.
When the paper gold price falls, does your gold bullion price does not fall the same amount? If you track the buying or selling prices at your neighborhood gold dealer, don't you see the price is tracking pretty much the same expect that sometimes the commission (markup/markdown) might be shrinking or expanding a bit.
You are buying gold bullion at with markup and selling again with commission and that commission is actually huge. It really does pay to be a dealer!
If the paper gold prices drop significantly do you think your physical gold will stay the same or drop less or follow the same route down along with paper gold? How did it behave when gold made the peak in 80s ($800+) and subsequently dropped to around $250. Was bullion form immune?
I am very much interested in your rebuttal though.
(Disclosure, I currently own a small amount in UGL and some via a couple of mutual funds that hold some gold)
What you ask about is the nut. The spread between paper and physical price of gold, silver, etc. This should always be minimal and the prices should mirror each other. Should. Ah, but there's many a slip betwixt the leap and the saddle.
Sometimes these prices diverge and this is expressed in one of two ways and sometimes both. The first is the premium (vigorish, if you will) charged above the 'spot' price of gold (or whatever) can be increased. This premium can vary quite a bit, not only over time, but also between various products. Here's a current listing from my local dealer. I don't know how to link to a pdf, but click on the one called Daily Quotes and note they show the premium in a percentage.
Now this premium varies between types of bullion AND over time with market forces. This leads to the second expression of the variances between paper and physical price and that's available supply of the various types of bullion, and by quantity limits and delivery delays. When the supply starts drying up, it's an expression of the variance felt by dealers and those holding bullion. Classic Econ 101 supply/demand curve for a price control situation. You impose an artificial price on a good or service that is below what suppliers feel fair and they will withhold supply (or increase the premium if they can). The paper price of gold is set by futures contracts and can be impacted by naked shorts, and many other market tactics. I'd assume that the vast majority are legal and simply due to market positioning of the players. That said, if the paper price is below what I feel my gold eagle is worth, I'm not going to sell. Sorry. I'm all out.
This happened with gasoline price controls under Nixon. All of a sudden everyone was out of gas. Sorry. It's happening right now with credit and the ridiculously low rates being set by the Fed, bankers are simply not willing to loan money. Write a 30 year mortgage for 4%? Are you crazy? 6%? We'll talk.
It happened a couple of years back with bullion. Supply disappeared and to vig doubled. The vig on 2011 silver eagles before christmas for singles was 20%.
Now, with all of this said, I really don't see this as a lasting problem that the market won't address. Should that divergence between the paper and street prices grow too large, Captain Price will step in and restore equilibrium.
Part of the problem lately has been the volatility but again, I don't see any sort of conspiracy. I just see folks that have an ability to move the market to their advantage doing so.
Reply to @rono: When it comes time to sell the coin are you recover the premium paid? Maybe so right now. I am not sure.
I see on some coins the premium is 10-20%. It is nuts! If gold falls from favor and demand disappears like in the fall from grace in 80s-90s, the premium might unlikely to be recovered and if you try to sell, coin dealers/buyers might even demand discount to the spot price of gold. I hope you sell before then.
Reply to @Investor: "(Disclosure, I currently own a small amount in UGL and some via a couple of mutual funds that hold some gold")
I'm curious as to why, given your feelings on it. I would be much less surprised if you owned DZZ.
As for the physical price dislocating from the paper price, I'm not particularly in belief of that myself, although there is many times paper gold vs the amount of physical, and one theory regarding dislocation would seem - in part - to stem from a "run" on the futures market (tons of people stand for delivery, it can't be accomplished, people are paid in cash for their position but don't get the physical and you see a spike in the price of physical as people scramble for the physical - and again, there's much less physical than paper gold - and realize that paper gold is, well, just paper.
The dislocation theory seems to come from - in some parts - a "tipping point" where people decide they want their physical and realize that paper gold (futures, whatever) is just paper. Semi-related, you've sort of seen a dislike of paper with the metals stocks, which have not done nearly as well as the metals - people apparently would rather have the metals than own the stocks. Eventually people may find the valuations of the gold stocks appealing - they already would appear to be - but who knows when that may be.
Or you have the situation with Gerald Celente and MF Global, where he was buying futures to stand for delivery and then the MF Global situation happened.
Thanks for chiming in here... You mentioned two things that I wanted to follow up on.
First, the premium/discount cost that is part of the purchase of physical metals. I have noticed that the gold/silver fund CEF also has this added cost. I wonder if it maybe due, in part, to the funds added "cost" of purchasing physical gold for its fund and its shareholders. You seem to trust this funds ownership of physical gold and silver as well as its advantageous tax treatment.
The second, the concept of "naked shorting" as a market dynamic. Shorting is a trading strategy. My understanding is that "naked short selling" is illegal.
For those who have not watch this presentation, on the pervasiveness and problems naked shorting, it is worth your time. It seems that market direction is less and less about the movement of the common "ants" and more and more about goals of "miscre-ants" who, IMHO, need to be "warmed" with a magnifying glass.
Sure, the premiums work both ways. For example, you can go in an buy 1 oz. plain vanilla silver rounds and pay a very small premium over spot - 5-6%. This compares to 11% for a 2012 silver eagle. Think of it as paying for Top Shelf booze.
For silver bullion that isn't a coin, I've always preferred either Englehard, or Johnson Matthey as they're the 'name brands'. This gets to the fungibility issue. If you buy some gold or silver eagles, or whatever . . . you want to be able to sell it easily, with minimal hassle and with the most favorable price relative to spot.
And this is how it works both ways. You can sell a US Silver Eagle at a McDonalds, but a 10 oz. silver ingot minted by BF Mint and PonyRides out of BF Nowhere might be a bit harder to sell at the best price relative to spot.
As for the size of the vig and the chances you'll get a 'margin call' so to speak? Sure, it's there for all of us. Geez, it's there when you buy a stock or mutual fund. We all pay something for the purchase, if not a blatant load, and there's the mgt fees. And if you have to turn around and sell tomorrow? How about Early Redemption Fees? Most are 2% if less than 90 or 180 days.
For every financial transaction you have ever made or will ever make someone is collecting the vigorish. The best we can do is our best to minimize the size.
Comments
While I don't doubt the veracity of the article, I've always pretty much taken this sort of market 'manipulation' for granted. I don't see it as any grand conspiracy, as much as the nature of the beast. In actuality, you can insulate yourself from this sort of thing by avoiding 'paper' bullion options like GLD and SLV.
Your first choice should always, always, always take possession of the physical metal itself. Second choice is to invest in the mutual funds that hold the stocks of mining companies. This is 95% of the precious metals mutual funds. Lastly, if you really must own some paper bullion, go with CEF.
peace,
rono
I personally believe this argument that physical gold will be worth more when paper gold is decimated is a gold bug BS. It is a myth. It is a fallacy created a false sense of security.
When the paper gold price falls, does your gold bullion price does not fall the same amount? If you track the buying or selling prices at your neighborhood gold dealer, don't you see the price is tracking pretty much the same expect that sometimes the commission (markup/markdown) might be shrinking or expanding a bit.
You are buying gold bullion at with markup and selling again with commission and that commission is actually huge. It really does pay to be a dealer!
If the paper gold prices drop significantly do you think your physical gold will stay the same or drop less or follow the same route down along with paper gold? How did it behave when gold made the peak in 80s ($800+) and subsequently dropped to around $250. Was bullion form immune?
I am very much interested in your rebuttal though.
(Disclosure, I currently own a small amount in UGL and some via a couple of mutual funds that hold some gold)
What you ask about is the nut. The spread between paper and physical price of gold, silver, etc. This should always be minimal and the prices should mirror each other. Should. Ah, but there's many a slip betwixt the leap and the saddle.
Sometimes these prices diverge and this is expressed in one of two ways and sometimes both. The first is the premium (vigorish, if you will) charged above the 'spot' price of gold (or whatever) can be increased. This premium can vary quite a bit, not only over time, but also between various products. Here's a current listing from my local dealer. I don't know how to link to a pdf, but click on the one called Daily Quotes and note they show the premium in a percentage.
http://www.libertycoinservice.com/
Now this premium varies between types of bullion AND over time with market forces. This leads to the second expression of the variances between paper and physical price and that's available supply of the various types of bullion, and by quantity limits and delivery delays. When the supply starts drying up, it's an expression of the variance felt by dealers and those holding bullion. Classic Econ 101 supply/demand curve for a price control situation. You impose an artificial price on a good or service that is below what suppliers feel fair and they will withhold supply (or increase the premium if they can). The paper price of gold is set by futures contracts and can be impacted by naked shorts, and many other market tactics. I'd assume that the vast majority are legal and simply due to market positioning of the players. That said, if the paper price is below what I feel my gold eagle is worth, I'm not going to sell. Sorry. I'm all out.
This happened with gasoline price controls under Nixon. All of a sudden everyone was out of gas. Sorry. It's happening right now with credit and the ridiculously low rates being set by the Fed, bankers are simply not willing to loan money. Write a 30 year mortgage for 4%? Are you crazy? 6%? We'll talk.
It happened a couple of years back with bullion. Supply disappeared and to vig doubled. The vig on 2011 silver eagles before christmas for singles was 20%.
Now, with all of this said, I really don't see this as a lasting problem that the market won't address. Should that divergence between the paper and street prices grow too large, Captain Price will step in and restore equilibrium.
Part of the problem lately has been the volatility but again, I don't see any sort of conspiracy. I just see folks that have an ability to move the market to their advantage doing so.
peace,
rono
I see on some coins the premium is 10-20%. It is nuts! If gold falls from favor and demand disappears like in the fall from grace in 80s-90s, the premium might unlikely to be recovered and if you try to sell, coin dealers/buyers might even demand discount to the spot price of gold. I hope you sell before then.
I'm curious as to why, given your feelings on it. I would be much less surprised if you owned DZZ.
As for the physical price dislocating from the paper price, I'm not particularly in belief of that myself, although there is many times paper gold vs the amount of physical, and one theory regarding dislocation would seem - in part - to stem from a "run" on the futures market (tons of people stand for delivery, it can't be accomplished, people are paid in cash for their position but don't get the physical and you see a spike in the price of physical as people scramble for the physical - and again, there's much less physical than paper gold - and realize that paper gold is, well, just paper.
The dislocation theory seems to come from - in some parts - a "tipping point" where people decide they want their physical and realize that paper gold (futures, whatever) is just paper. Semi-related, you've sort of seen a dislike of paper with the metals stocks, which have not done nearly as well as the metals - people apparently would rather have the metals than own the stocks. Eventually people may find the valuations of the gold stocks appealing - they already would appear to be - but who knows when that may be.
Or you have the situation with Gerald Celente and MF Global, where he was buying futures to stand for delivery and then the MF Global situation happened.
http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2011/11/17_Gerald_Celente_-_MF_Global...What_about_Gold_ETF_GLD_&_HSBC.html
Thanks for chiming in here... You mentioned two things that I wanted to follow up on.
First, the premium/discount cost that is part of the purchase of physical metals. I have noticed that the gold/silver fund CEF also has this added cost. I wonder if it maybe due, in part, to the funds added "cost" of purchasing physical gold for its fund and its shareholders. You seem to trust this funds ownership of physical gold and silver as well as its advantageous tax treatment.
The second, the concept of "naked shorting" as a market dynamic. Shorting is a trading strategy. My understanding is that "naked short selling" is illegal.
For those who have not watch this presentation, on the pervasiveness and problems naked shorting, it is worth your time. It seems that market direction is less and less about the movement of the common "ants" and more and more about goals of "miscre-ants" who, IMHO, need to be "warmed" with a magnifying glass.
Sure, the premiums work both ways. For example, you can go in an buy 1 oz. plain vanilla silver rounds and pay a very small premium over spot - 5-6%. This compares to 11% for a 2012 silver eagle. Think of it as paying for Top Shelf booze.
For silver bullion that isn't a coin, I've always preferred either Englehard, or Johnson Matthey as they're the 'name brands'. This gets to the fungibility issue. If you buy some gold or silver eagles, or whatever . . . you want to be able to sell it easily, with minimal hassle and with the most favorable price relative to spot.
And this is how it works both ways. You can sell a US Silver Eagle at a McDonalds, but a 10 oz. silver ingot minted by BF Mint and PonyRides out of BF Nowhere might be a bit harder to sell at the best price relative to spot.
As for the size of the vig and the chances you'll get a 'margin call' so to speak? Sure, it's there for all of us. Geez, it's there when you buy a stock or mutual fund. We all pay something for the purchase, if not a blatant load, and there's the mgt fees. And if you have to turn around and sell tomorrow? How about Early Redemption Fees? Most are 2% if less than 90 or 180 days.
For every financial transaction you have ever made or will ever make someone is collecting the vigorish. The best we can do is our best to minimize the size.
peace,
rono