Wednesday, August 5, 2015

It is NEVER fresh buying that makes the low – it is short-covering – END OF STORY.

Hedging v Trading – What Really Makes the Low

GCNYNF-M Hedging
The lack of understanding with respect to market development is astonishing. The gold promoters keep desperately trying to argue that demand is somehow rising for physical coins so somehow the prices are not real. At the bottom of markets it is NEVER fresh buying that makes the low – it is short-covering – END OF STORY.

Gold 1985 Low

As we move into lower prices, mining companies are FORCED to sell gold forward (Paper Gold) to try to make ends meet. Their short positions will increase going into the lows and without real hedging models, many will go bankrupt. They will lose a fortune and contribute to the short-cover rally that even took place back at the 1985 low. Back then, there was one gold promoter who was short at the low and lost everything in a matter of days. The founder of  International Gold Bullion Exchange was sentenced to 10 years in prison for being short.with no sense of how to hedge. That is why we developed both speculative & hedging models with entirely different goals.
As commodities get killed, the smart companies are starting to wake up. I am off to Mumbai for an urgent meeting next week. Many are starting to realize you cannot trade on headlines or advice from banks who profit from the trade with their conflict of interest. Unbiased independence is the only way to survive.

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