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August 02, 2014, 07:55:13 PM |
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Shorting Gold ETFS/Futures/CFDs or another liquid & tradable proxy for gold is probably the absolute safest bet you can do right now.
Why?
Its clear to me that prices are manipulated downward. Banks simply won't allow a big upward spike in Gold prices for a multitude of reasons, not the least of which is that they stand to lose a huge amount of money if they do so. So, instead, they double-down on short positions accumulating more paper profits from the slippage of their own orders, eroding confidence, and increasing the problem down the road whenever they want to get out of the huge short positions.
Pretty much the bull story for gold is that suddenly gold prices will rocket upwards when these banks will cover their shorts. The answer is, they won't fucking cover their shorts. GLD is non-deliverable. You can't ever demand delivery of physical gold in pretty much any of the products I just listed. You can't arb these products. If physical got out of wack, then all that would happen is the demand for gold would further shift away from the products I just listed and into the physical gold market, further tanking the ETF/Futures/CFD price.
There's basically no reason to ever be long the CFDs except if you think in the short term that people will use them to speculate on "flights to safety." However, more and more people are recognizing that buying these contracts don't amount to flights of safety; in fact, they can actually result in you taking on MORE risk, since you're now assuming the counterparty risk of whoever issues the contracts. If you're a Russian, whose to say your futures will even be honored, even for non-physical settlement, if more sanctions are put on you? The value of gold is in its perceived value, its limited quantity, and its purpose as a flight to safety asset. Gold contracts still have a perceived value, but lack the other characteristics of gold. The more banks short the contracts, the less perceived value they have.
Because of all this, there's literally NO reason not to short gold contracts. Either everything is peachy, and gold continues falling slowly, or everything goes berserk, and banks have to quickly dump gold contracts, and it works, in which case you're in the red for a few days but you recover, or everything goes berserk, and banks have to quickly dump gold contracts, but people don't fall for it, in which case the contracts go to 0. It gets even better when you realize that you get paid to short gold contracts, since gold doesn't earn interest & USD does. This means that contracts are usually in a state of contango, making shorting profitable even if globex is flat.
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