Time for another update on my little project positive interest rates. My friend, who had invested a good deal of his christmas allowance and an advance on his end of the year bonus in physical gold, has cashed in some to pay for the skiing classes of his kids (it’s a weird folkloristic thing here in Austria, nobody can afford to stand apart). It was 7,5 % net for two months, from this point, which makes for an annualized 40 %. But make no mistake: it was but an exercise in cash management, a marginal thing. R. would never give up his insurance against systemic failure.
There is a lot to be said, but I leave it at this: what they did in the first week of this month reeks of despair. On wednesday and thursday they even squeezed the dollar to get the paper gold price going (and I was foolish enough to think of a dollar crash ). Friday and today, on monday, there was a “conventional” melt up, which should be lost on the common man, but not on the owners of physical, who are supposed to turn it in.
It’s a real dilemma, bc you know, the interest rates…
Why did they do this (and keep on doing it) ? My wild ass guess is, that they need the real stuff very bad – not in New York but at the LBMA (the gold bug crowd always looks the wrong way). And the real stuff turns up only, when the paper gold price increases. Look at GLD, which is said to be a reflection of the real physical spot market in London. They managed to add nearly 30 tons last week alone (the LBMA is completely opaque and from the outside nobody can tell what is going on).
I have no idea, for how long they will manage to keep this highly leveraged machine going. This is why one should be prepared to go on living with paper gold.
So in all probability there will be a continuation of the melting up process until … let’s say: 1350 USD.
This would be a loss of profit for everybody, who did cash in today. But remember, there are two variables for Euro gold, a twofold chance to get it wrong. If there are bills to be paid and this is forseeable, one should act when the going gets good.
As always: No recommendation, everybody is responsible for him/herself. Good luck !