Tweet
or 'conspiracy' - whichever seems to fit better...
and since Mr J doesnt care to or hasnt yet decided to respond to this one (and since it looks like the LDP/abenomics program is still firmly in control) - figured maybe a wider audience might get the discussion rolling on this one?
this was first noted at the turds place (last week)
with snips here from 0cred (which might not be the best source for actionable info, but IS really quite entertaining reading late at night... ;)
theres been a number of the usual suspects chattering lately about a 'big december move' in the PM's
is this a piece of the puzzle/clue about whats comin down the pike?
An Inside Look At The Shocking Role Of Gold In The "New Normal"
comments from POZ ?
since he's our resident expert observer/commentator on K.Bass&co's JPY carrytrade short-bet
and this one.. goes on and on and on and ON - with LOTS of coool charts/graphs an stuffs - only about 10% reposted here to get the discussion rolling...
paste-into yer browser the 0cred URL, with the exact link:
/news/2014-12-04/inside-look-shocking-role-gold-new-normal
and since Mr J doesnt care to or hasnt yet decided to respond to this one (and since it looks like the LDP/abenomics program is still firmly in control) - figured maybe a wider audience might get the discussion rolling on this one?
this was first noted at the turds place (last week)
with snips here from 0cred (which might not be the best source for actionable info, but IS really quite entertaining reading late at night... ;)
theres been a number of the usual suspects chattering lately about a 'big december move' in the PM's
is this a piece of the puzzle/clue about whats comin down the pike?
An Inside Look At The Shocking Role Of Gold In The "New Normal"
comments from POZ ?
since he's our resident expert observer/commentator on K.Bass&co's JPY carrytrade short-bet
From Paul Mylchreest of ADM Investor Service International
Long Nikkei/Short Gold: Profitable, dangerous and missed by everybody?
Has the market completely missed a huge long/short trade which has helped to drive up the Nikkei and drive down the gold price for more than 2 years? One that puts risk-taking and leveraged speculation by our industry in an unfavourable light again.
* * *
Executive Summary
In the report we outline a thesis which draws together a complex web of interactions between Japanese equities, the gold market, repo financing, BoJ monetary policy meetings and anomalies in the silver market.
These interactions began forming in late-2012, specifically around September, as far as we can tell. With hind-sight, this was a pivotal period in recent financial history, when central banks embarked on a new phase of aggressive credit creation. We found no evidence of these interactions beforehand and think it is fairly unlikely that they are merely the result of coincidence.
At the centre of this, it looks to us like a large, leveraged long/short trade has been built up which is long the Nikkei index and short gold. The more the Nikkei has risen, the more the gold price has been pushed down.
It’s a clever trade from a cynical perspective, as we’ll explain. However, it also raises concerns regarding risk taking and the measurement of risk which have made speculative abuses by some entities in our industry (especially banks) only too infamous in recent years.
If we are correct about this trade, a shock affecting either the long or short side could roil financial markets if it was unwound in a disorderly fashion. Potential threats include:
Going into a bit more detail…
We suspected that gold might be the short in a long/short trade when we noticed a reasonably close correlation between gold and interest rates in the repo market. The more the cost of repo funding declined, the more the price of gold declined.
The repo market is a major part of the aptly-named “shadow banking” sector. It is also the nexus for investment strategies involving leverage and short selling. If gold was the short in a long/short trade, the next question was whether there was a corresponding long? We think that the answer is yes, the Nikkei.
If we cast our minds back to September 2012, we had the announcements of “QE3” by the Fed and the “Enhancement of Monetary Easing” by the Bank of Japan (BoJ). The initial reaction of the gold price was positive, which was hardly surprising, although it turned out to be short-lived.
The subsequent collapse in gold has been counterintuitive, especially when the demand for physical gold bullion has remained strong as we show. It has also given the impression that the impact of monetary policies which are “loose”, to a degree which is unprecedented, is benign. It is much too early to reach that conclusion.
Major upward moves in the Nikkei and coincident weakness in the gold price can, in most cases, be closely tied to BoJ policy meetings for the past more than two years. This is especially true when BoJ meetings have included announcements of more aggressive monetary policy in support of “Abenomics.” We cover examples of such price moves which followed BoJ meetings in January 2013, April 2013, October 2013, May 2014, August 2014 and October 2014.
A number of unpleasant ironies are immediately apparent:
Long Nikkei/Short Gold: Profitable, dangerous and missed by everybody?
Has the market completely missed a huge long/short trade which has helped to drive up the Nikkei and drive down the gold price for more than 2 years? One that puts risk-taking and leveraged speculation by our industry in an unfavourable light again.
* * *
Executive Summary
In the report we outline a thesis which draws together a complex web of interactions between Japanese equities, the gold market, repo financing, BoJ monetary policy meetings and anomalies in the silver market.
These interactions began forming in late-2012, specifically around September, as far as we can tell. With hind-sight, this was a pivotal period in recent financial history, when central banks embarked on a new phase of aggressive credit creation. We found no evidence of these interactions beforehand and think it is fairly unlikely that they are merely the result of coincidence.
At the centre of this, it looks to us like a large, leveraged long/short trade has been built up which is long the Nikkei index and short gold. The more the Nikkei has risen, the more the gold price has been pushed down.
It’s a clever trade from a cynical perspective, as we’ll explain. However, it also raises concerns regarding risk taking and the measurement of risk which have made speculative abuses by some entities in our industry (especially banks) only too infamous in recent years.
If we are correct about this trade, a shock affecting either the long or short side could roil financial markets if it was unwound in a disorderly fashion. Potential threats include:
- Growing criticism of Abenomics and weak economic performance in Japan;
- Increasing signs of schism in gold and silver markets between strong physical demand and price discovery which is dominated by paper instruments and which has almost reached nonsensical levels; and
- Interest rates in the repo market have started to rise with the Fed winding down QE3.
Going into a bit more detail…
We suspected that gold might be the short in a long/short trade when we noticed a reasonably close correlation between gold and interest rates in the repo market. The more the cost of repo funding declined, the more the price of gold declined.
The repo market is a major part of the aptly-named “shadow banking” sector. It is also the nexus for investment strategies involving leverage and short selling. If gold was the short in a long/short trade, the next question was whether there was a corresponding long? We think that the answer is yes, the Nikkei.
If we cast our minds back to September 2012, we had the announcements of “QE3” by the Fed and the “Enhancement of Monetary Easing” by the Bank of Japan (BoJ). The initial reaction of the gold price was positive, which was hardly surprising, although it turned out to be short-lived.
The subsequent collapse in gold has been counterintuitive, especially when the demand for physical gold bullion has remained strong as we show. It has also given the impression that the impact of monetary policies which are “loose”, to a degree which is unprecedented, is benign. It is much too early to reach that conclusion.
Major upward moves in the Nikkei and coincident weakness in the gold price can, in most cases, be closely tied to BoJ policy meetings for the past more than two years. This is especially true when BoJ meetings have included announcements of more aggressive monetary policy in support of “Abenomics.” We cover examples of such price moves which followed BoJ meetings in January 2013, April 2013, October 2013, May 2014, August 2014 and October 2014.
A number of unpleasant ironies are immediately apparent:
paste-into yer browser the 0cred URL, with the exact link:
/news/2014-12-04/inside-look-shocking-role-gold-new-normal