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John Paulson Just Found the People Who Will Ultimately Be Buying His Gold
October 6, 2010 01:21 PM
Here's the thing with speculating in gold: in order for your bet on higher gold to pay off, you have to have someone willing to buy it when it gets to $4,000 or $10,000 or whatever an ounce. That poses an inherent problem because, under ordinary circumstances, the people who buy these assets from shrewd investors such as John Paulson are us; you and me, the individual trader who piles into these assets once they reach their peak -- like with Internet stocks and houses and condominiums and Treasury bonds.
See, with Internet stocks it was easy. We were coming off a pretty big bull market, one that had us feeling flush with our 401ks, and because credit was easy we could buy $150 stocks on margin without much of a hassle. Thus, the transfer of wealth was a fait accompli. With houses and condos it also came relatively easy. Sure, our 401ks were a bit wrecked after the dot.com bubble, but we had our houses, and the ability to borrow money without demonstrating either income or collateral made the transfer of wealth, once again, a fait accompi. With Treasury bonds, too, the wealth transfer will be easy. They're easy to buy, either directly, or via Exchange Traded Funds.
But gold, well, this could be a problem.
First, buying gold isn't easy. There are some ETFs available, the GLD etc., but investors such as John Paulson have a lot of gold. According to statements he's made recently, he alone, through his fund, has more than $3 billion in gold and gold-related investments, plus a new fund set to open on January 1 dedicated to gold that he's going to commit another $200 to $250 million to.
Large investors such as Paulson are going to need to sell more than just shares of an ETF to us. They need us to buy everything from shares of gold mining companies to the physical metal itself, even futures contracts. That's going to be a problem. Well, it
going to be a problem. Fortunately, as of this past Sunday, October 3, there's a
new gold E-Micro futures contract
available for us to buy at a tenth of the size of the world benchmark for gold prices. It's available at a fraction of the price!
That's important, because who among us has $4,000 sitting around available to plow into a metal bar?
"E-micro Gold futures offer
incremental access to ownership
of a 100-ounce bar of gold," the CME Group Web site says. "As such, they offer individual investors
a less capital-intensive way
to participate in the world gold market than trading the standard-sized contract." Just like that. Problem solved. It's the beauty of high finance and capitalism. When you're creating a bubble, you need to make sure the little people can access it, else you might wind up
like the Hunt brothers
No positions in stocks mentioned.
E-MICRO GOLD FUTURES
THIS IS HOW EVERY BUBBLE ENDS
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