One of the most amazing things that has happened in the global capital markets in the past month is that gold and silver have turned into equities. You know, those precious metals that are supposed to be a store of value and a safe haven during troubled times?
They have morphed overnight from hard assets into paper ones, with the barbarous relic nose diving $392 from $1,922, or 20%, in less than four weeks, while the white metal is off nearly $24, or 48% from its April $49.90 top.
It is clear what is happening here. The biggest hedged funds, like the one run by the subprime hero, John Paulson, have gotten into big trouble with ill-advised holdings in financials and are unloading everything else to meet margin calls and expected redemptions. What are their largest remaining profitable positions? Gold and silver.
It’s no good reminding you all that I warned this was going to happen in my piece “Gold: I Told You So” at http://www.madhedgefundtrader.com/september-27-2011-2.html . I was certain that once the “RISK OFF” trade hit, there would be no place to hide and everything would go down together.
If you’re not out now, the damage is already done. At least my Macro Millionaire followers managed to coin it on the downside with some well-timed positions in out of the money puts, which they have already covered profitably.
That’s why the price action has been like a flash fire in a movie theater, frying the gold bugs in the process. The good news in all of this is that a big part of the drop is behind us. The bad news is that we may have three more months of such liquidations before we reach the bottom. Note to Indian subscribers: Will more of you please get married and provide some end user support under the distressed yellow metal? We are in the midst of the fabled Indian wedding season after all.
For those who wish to participate in Macro Millionaire, my highly innovative and successful trade mentoring program, please email John Thomas directly at firstname.lastname@example.org . Please put “Macro Millionaire” in the subject line, as we are getting buried in emails.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on “This Week on Hedge Fund Radio” in the upper right corner of my home page.