May 4, 2011
The rumormill around who is buying and selling precious metals is getting more ridiculous than daily Radioshack LBO speculation. The latest comes from the WSJ which informs that based on “people close to the matter” Soros and Burbank are now dumping their gold and silver: “George Soros’s big hedge fund, a firm operated by high-profile investor John Burbank and some other leading firms have been selling gold and silver, according to people close to the matter, after furiously accumulating precious metals for much of the past two years.” Greg Zuckerman’s conclusion, assuming a multi billion hedge fund will actually let its competitors know what it is doing concurrently as it is doing it, is merited: “Their selling suggested the sharp, nine-month run-up for precious metals could be entering more dangerous territory.” Of course, something tells us that just like Goldman, whose prop desk has a nagging tendency to buy as its sellside “analysts” say sell, we would rather hold off until we see respective 13Fs on the matter. In the meantime, we fail to see where over the past week the central (pardon the pun) thesis has changed: namely that central banks will not print more linen/cotton when the time comes. And if the market is indeed starting to price in QEasing’s end, then the deflationary scare will certainly see the RUT plunge and undo months of carefully executed (by NYU interns) POMO operations. For a Fed which equates the economy with the RUT, this is simply unacceptable.
More from the WSJ:
Yet silver, which has had a huge run, remains up nearly 38% in 2011. It rose 84% last year.
And some prominent investment pros continue to favor precious metals, among them hedge-fund manager John Paulson.
Last week an exchange-traded fund, or ETF, that owns silver bullion—the iShares Silver Trust—was the most active ETF on the U.S. market on some days, a sign of the rabid recent interest in silver.
“We haven’t seen this much volatility in decades,” said Robin Rodriguez, a metals trader in Charlottesville, Va. “We have such large profits built in,” so some investors are taking their winnings, said Mr. Rodriguez, who remains bullish on the metal.
Interest in holding the silver ETF grew so intense it became hard to borrow shares to sell, as bearish traders need to do if they want to sell the metal short and bet on a decline.
All this helped set up the tumble, which started late Sunday, catching many by surprise. As sell orders flooded the market in Asia, brokers sought more collateral from investors who had bought on margin, even as they fielded calls from anxious investors who wanted to sell.
“Everybody wanted to get out,” said Richard Digenan, an executive at R.J. O’Brien, a brokerage firm in Chicago.
The other side of the story, that of repeated margin hikes, is well known to ZH readers:
For those who invest in silver via the futures market rather than an ETF, exchanges and brokers have been raising margin requirements, the amount of collateral investors must leave with their broker to back a position.
CME Group, a commodity-exchange operator, has raised margin requirements three times in a week. It announced the latest increase Tuesday.
Many investors in silver futures make heavy use of borrowed money and were faced with either sending more collateral to their brokers or selling some contracts.
But back to the original story:
For nearly two years, Mr. Soros’s hedge-fund firm bought gold and silver, becoming the seventh-largest holder of the biggest gold ETF, the SPDR Gold Shares. Some others with stellar records—including Mr. Burbank, of Passport Capital, and Alan Fournier, of Pennant Capital—also have been passionate about precious metals, giving encouragement to individual investors to follow.
Now they are selling, in each case for distinct reasons.
While many who buy gold do so to protect against future inflation, Soros Fund Management bought gold to protect against the possibility of the opposite—debilitating deflation, or a sustained drop in consumer prices.
But now the $28 billion Soros firm, which is run by Keith Anderson, believes chances of deflation are reduced, eliminating the need to hold as much gold, according to people close to the matter.
People familiar with Mr. Anderson’s thinking said he believes the Federal Reserve’s continuing to pump money into the system has reduced the likelihood of deflation.
The Soros team, meanwhile, isn’t especially worried about a surge in inflation. Mr. Anderson has argued that by the end of this year the Fed will signal that interest-rate increases are in the offing, possibly early in 2012, according to someone close to the firm. Higher interest rates would tend to suppress inflation.
The Soros fund has sold much of its gold and silver investments over the past month or so, according to this person.
Mr. Burbank, a longtime gold supporter who predicts growing worries about the creditworthiness of the U.S. and some other nations, has trimmed some of his investments to lock in profits, according to someone close to the firm. This person added that Mr. Burbank remains a long-term gold bull and expects to buy more gold-mining shares after a decline.
Yes, this is the same Soros who bastardized Hayek a week ago, even as he admitted that the current monetary system is on the precipice.
As for the only guy who matters, and whose every move is studied under a microscope, he is not budging. In fact, he see gold at $4,000 in 3 years.
A number of high-profile investors remain huge holders of gold and silver, amid continuing concern about inflation and the dollar. Mr. Paulson, known for his lucrative bet against mortgages a few years ago, told investors he still has most of his personal money in gold-denominated funds operated by Paulson & Co.
Mr. Paulson told investors Tuesday morning that gold prices could go as high as $4,000 an ounce over the next three to five years, as the U.S. and U.K. flood the money supply. Gold settled in New York at $1,540.10 a troy ounce Tuesday.
Also, Wexford, run by Robert Rubin’s right hand man from the Goldman arb desk days, and Mike Steinhardt protege, Chuck Davidson, doesn’t appear to be going anywhere in a hurry either.
Wexford Capital, a $6.5 billion fund that has been a large buyer of silver over the past year, retains much of its metal positions, according to someone close to the matter.
Either way, a two day 20% correction, and everyone crawls out of the woodwork screaming bloody murder, even as silver has retraced to a price… from two weeks ago.
And once again we ask: will the Chairsatan stop printing? And what happens when the economy tumbles in Q2, as it will once the full hit from the Japanese economic collapse is felt, and Bernanke has no choice but to do in 2011 what he did in 2010? So yes, let silver drop to $30. Let it plunge to $20. The lower the better. Day traders on margin are advised to stay out. Everyone else, who has a personal vendetta with Bernanke however will find each incremental drop an even better opportunity to slam the stake in the heart of a failed monetary regime which is now in its last days.
Everything else is minute charts and irrelevant candles.
This article was posted: Wednesday, May 4, 2011 at 2:49 am