Gold correction has ended

[nitro]

Quote from Cutten:

By the way, I think people are missing the point somewhat here. Its not really worth trying to guess whether to buy gold at 560 vs 580. If you are a long term bull and think gold will hit 1000 - or even higher - then what matters is having on and holding a large long position when the market is making its subsequent very large price advance.

Just as it did not matter so much whether you bought at 375, 400, or 430, but rather whether you held a large long position from 450 to 700, so it will not matter whether you pick the exact bottom of this correction. Rather, what will make the big money is identifying when the correction has ended, spotting a resumption of the long-term bull market, and then getting and staying long until that bull run is over.

Ok, explain to me how you would hold a large position in gold? If you are in miners, you don't have 100% exposure to gold (let alone single stock risk) and it is expensive to hold dead money with no leverage. If you do gold futures, the leverage is much higher and there is the expense of having to continually roll over the contract every couple of months.

It is not so simple in practice.

nitro

 

[jrkob]

Quote from nitro:

Ok, explain to me how you would hold a large position in gold? If you are in miners, you don't have 100% exposure to gold (let alone single stock risk) and it is expensive to hold dead money with no leverage. If you do gold futures, the leverage is much higher and there is the expense of having to continually roll over the contract every couple of months.

It is not so simple in practice.

nitro

Nitro, I was told that buying gold through miners, you do get leverage. Here's the theory which I'm sure you know:

Income: 650$
Expenses: 400$
Net: 250$

Gold jumps to 700$ (a 12% increase or so)
Income: 700$
Expense: 400$
Net: 300$ (a 20% increase)

Of course we could discuss whether you costs should increase as well.

Am I missing something ?

In 92-93 during the gold peak at 400$ I was holding a few south african mine stocks (I believe all of them closed since then) and they rose a lot more than the gold ounce, in %. Of course, they fell as fast as they rose aftewards.

The theory was that if you want moderate leverage, you buy canadian mines (because they are outdoor mines, with, therefore, moderate production costs) and if you want higher leverage, you get the south african mines (because they are undeground mines, therefore with higher production cost, that's why most of them closed in the lated 90s).

Thank you.

 

[goldensavage]

Quote from nitro:

Ok, explain to me how you would hold a large position in gold?
It is not so simple in practice........ allocated bullion, 100ozs trade.. no shorting....Perth Mint......unallocated/leveraged...Credit Suisse, 500ozs trade..no shorting........agreed not the most flexible

nitro

 

[PMInterloper]

You can either go long far out months or continually roll over near months. In practice this is simple and takes little more than a phone call or click of a button...any half decent broker will onform you when you're getting close to roll-over anyway.

What is not so simple is getting in and holding on and this where practice comes in. Paper trading and other theoretical behaviours simply do not replicate the reality of having you money on the table when the moves are on: 5 theoretical contracts losing $5k each on a $1 down move on silver is *nothing* compared to what can be a gut- wrenching situation. Unless you have practiced, understand the market and have factored in the moves in your initial positions of course. Practice is necessary and can be *expensive* which is why most people get blown out the futures game.

As for the cost of roll-over. The difference between exiting a contract and entering the next forward month costs a few bucks but is an irrelevance compared to the profits on a 3, 4, 5, 6 dollar up move ... consider it another expense, like fees, margin, maintenance or whatever.

The mechanisms are simple. The practice is anything but.

 

[GlobalFinancier]

580. Sell&short. dammit, I suppose I'll have to give up picking the bottom.

 

[GlobalFinancier]

587, cover&long. Hmm, not fun, but if we can break $600, then pyramid etc. *Shrugs* equity getting somewhat eroded by these short term trades though the negative impact is quite limited.

 

[drsteph]

Quote from GlobalFinancier:

587, cover&long. Hmm, not fun, but if we can break $600, then pyramid etc. *Shrugs* equity getting somewhat eroded by these short term trades though the negative impact is quite limited.

Dude.... seems like you are getting whipped.

Your MA system is getting chopped up in this 580 range here... maybe you should play a call instead so that at least if you get whipped around you can hold onto the position...

Its gonna go, sure... but by that point, will you have any capital left?

 

[Longhorns]

Quote from drsteph:

Dude.... seems like you are getting whipped.

Agreed. I know you (GlobalFinancier) said it's a small part of your equity, but maybe you should just leave gold alone for awhile and let the chop play itself out.

Whatever you end up doing, best of luck and keep the posts coming.

 

[Alex_in_Oz]

Some Funds are using the little excess liquidity they have in attempting to start a momentum up in Gold. Other funds are convinced the "smart" money is on the other side of the trade and are selling into the "rally" from US$560-580.
Polish Government is looking at selling some of its Gold reserves to finance debt (I saw on the Polish News yesterday). When that happens I don't know.
It sounded like a heck of a lot of the stuff US$580 is still a heck of a good price for something they picked up 7 years ago from Germany (When Polish Government Bonds were paying higher than 10%) for US$275

 

[imsurfing]

So why is gold going up this evening? I'm used to seeing spikes at about 2 am east coast time, when the london market starts buying, and/or the asian market starts buying anticipating that the london market is going to drive the price up.

at least that's what i, er, speculate, is going on.