Minyan Mailbag: Mother of All Short Squeezes for Gold?

Lance Lewis  Nov 05, 2008 3:45 pm

Minyan Mailbag: Mother of All Short Squeezes for Gold?
 
Look for bulls to run on yellow metal.
 

 

Along those same lines, some of the gold "inside-baseball" indicators are in fact finally beginning to reflect the tight physical market. Gold lease rates spiked back in September and October, but part of that move was in LIBOR (Lease rates are calculated by subtracting the 3M Gold Forward Offerred Rate (GOFO) from LIBOR).

However, the move in lease rates wasn't all the pop in LIBOR. As we can see in the chart of 3-month lease rates, lease rates remain elevated and near an 8-year high, even as 3-month LIBOR has collapsed back to below where it was in June, thanks to the Fed's print-a-thon.


Click to enlarge

That's because the GOFO continues to collapse. As GOFO moves closer to going negative, we get closer to seeing gold move into backwardation, which is fairly rare and uber bullish. Is the physical market tightening simply due to the continued high rate of physical demand and European central banks pulling in their leased gold/not rolling over leases? Is it related to the market sniffing out what you are implying might happen on the COMEX? Or is this related to the gold market sniffing out a potential dollar negative at the coming G20? Or is it all of the above?

I have no idea, but the last time we saw GOFO collapse like this (see the chart below), it was in the days leading up the Washington Agreement (and gold's ensuing 40% upside explosion on the news).


Click to enlarge


And this happened even though gold didn't seem to give any indication in the way it was trading until literally 4 days before the G7 meeting at which the Washington Agreement was announced that weekend. I'm not sure exactly what's going on, but clearly there something bullish afoot in gold.

Best regards,
Prof. Lewis

Rate this article:  (0 Votes)
Comments (7) See All Comments »
11-06-2008, 10:36 am
I've sold all of my silver eagles. I figure when retail buyers are paying 2x spot prices + shipping on eBay, there is going to be a crash in prices for coins coming at some point. (How correct can eBay buyers be? Look at $40k beanie babies &
Read More
11-06-2008, 1:36 pm
The coin market is a small fraction of the total gold market. THe US Mint is but a single issuer. Gotta think outside your box here and get a little more globally-minded.
Read More
11-06-2008, 9:15 pm
Delivery times over here in Europe (biggest bullion dealer in Germany)

Gold bullion bars, 1-500 gr: 6 weeks, 1 kg: 4 weeks
Silver coins, depending of type: 2 weeks to "Q1 09 (estimated)"
Silver bullion bars: up to
Read More
11-11-2008, 1:22 pm
Lance Lewis is an idiot, you haven'tbeen right on gold yet. Price determines everything? Bullish ? Hardly
Read More
11-24-2008, 3:48 am
The chart does not look that great except when compared with other commodities and in currencies other than the USD. Then it does look pretty good.

Lets face it the USD has just had the mother of all short squeezes.

What ge
Read More
discuss this article and more on the mv exchange
No positions in stocks mentioned.

Get real-time options trading ideas from Steve Smith, veteran options trader and newsletter author, plus let him show you the way to cut risk and boost your returns through the strategic use of options.  Click here for a free 14 day trial to OptionSmith by Steve Smith.



The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2009 Minyanville Media, Inc. All Rights Reserved.

Ticker Talk
Popular Tickers:
SPX »AMZN »RIMM »
Select
  •  
Talk Now
Share this Talk on your site:
Send us your feedback

Our Professors

rss article alert