Tuesday, May 25, 2010

Heavy Traffic

I forgot that this week and next cover just about every college graduation in the Cambridge area. As such my drive home was amazingly long and of course I am out of time. Just a few things I wanted to throw out there.

Big Market Rally, Ok.
A bad open on high volume and then the usual late day heroics on no volume. Great comeback market!:

Too funny.

COMEX Gold Expiration
Gold closed for the COMEX options expiration just under the line in the sand of $1200. Of course it went right past that after the close. Pure chance no doubt. Jesse has some thoughts:
Gold traded all day below 1200, at times rising to within fifty cents of the key strike price of 1200 where a large concentration of call options were clustered.
Well, since the call options at 1200 have expired worthless, why bother using the energy to continue to suppress the price?

Everything strikes me as funny tonight.

On a related note, this may not strike the gold bullion dealers as funny at all (via Zero Hedge):
Eric Sprott To Buy $235 Million In Gold, Or Over 6 Metric Tonnes, As Part Of PHYS Follow-On Offering
At a post-announcement per unit price of $11.40, this means Sprott will buy $235 million worth of gold in the open market. At today's gold price of $1,200 this translates into 195,833 troy ounces of gold to be acquired, or roughly 6 metric tonnes. Somehow, we don't think the LBMA will be too thrilled with this extraction of physical gold out of the controlled synthetic precious metal ponzi system.

That is funny indeed.

One more for a laugh, Marc Faber channels Economic Disconnect's long term view that low rates are now structural and needed, not a short term phenomena:
Marc Faber: Central Banks Will Not Tighten Rates Ever Again
The Central Banks will not tighten, but other forces may have a hand in this before the end.

Have a good night.


GawainsGhost said...

Last night on Bill O'Reilly, whom I rarely watch because he's such a [bleep] but there was nothing else on, he had as a guest Weiner, the congressman from NY.

Apparently, this guy is going after the gold sellers, particularly on whose name I don't recall, because they're selling coins and buillon at 100% markup. That would be twice the actual price.

Bill the Shrill took exception to this, saying that he was singling out one company. Weiner said he was going after them all, but this was the biggest.

I really don't know much about this congressman, having only seen him once before on the Daily Show, but I had to admire how he stood up to the Shrill and wouldn't let him dominate the conversation.

Anyway, it got me to thinking about the precious metals markets and how everything is way overpriced, just like every other commodity including real estate.

There will be a major correction. And a whole lot of people are not going to be happy about it.

Kid Dynamite said...

i came by to make sure you saw the PHYS announcement... as we had discussed!

Kid Dynamite said...

GYC - make sure you read PeterPeter's comment in that ZH post on PHYS. again, he's one of the only ones in the entire thread thinking rationally.

getyourselfconnected said...

that was a good one; copied here:
"by peterpeter
on Tue, 05/25/2010 - 19:39

20.7 million new units including the over-allotment.


The NAV on each unit is now $10.0445 (see the intraday idicative value for 5/25 or the NAV if after the page has been changed for today's data). That means that the 20.7 million new units would cost Sprott (ignoring the market impact of his purchase):

20.7M x $10.0445 = $207.92M

However, with PHYS trading at $12.21, the value of those same shares (as deemed by folks who don't seem to mind paying a 24% premium for Gold...) is:

20.7M x $12.21 = $252.74M

That means his gains ignoring the impact of his transactions on the underlying price of Gold and PHYS would be approximately $44.8M. Since his purchase will slightly push up the price of Gold and likely drop the premium on PHYS somewhat, he'll get less than that, but still a huge amount of money for not all that much work.

This is a risk free arbitrage for Sprott. For some crazy reason, people are paying a 24% premium for his shares, which is - well - stupid. No tax advantage (which is at best fleeting) is worth paying an additional $287/oz.

Storage (if done right) is not all that cheap, nor is taking physical delivery - but for $287/oz, you can get *much* better storage and delivery than Sprott will give you, and still have a lot left over.

The people who are buying PHYS at these premiums are just financially illiterate, and Sprott is doing the sensible thing and making a huge windfall profit off of their stupidity.

Note - long physical gold, GLD and short PHYS (and adding to my PHYS shorts until the premium drops from these ridiculous levels)."

Hits on some things I think are off on the whole rush into PHYS. The very next comment had me worried:
"by What_Me_Worry
on Tue, 05/25/2010 - 19:54

I think the premium on PHYS and CEF shows just how different the price of actual gold and paper gold can be. If PHYS and CEF (maybe others) can just keep arbing their own premium over and over again to acquire more and more gold then they could finally force the hand of paper gold into a panic state."
Keep arbing a premium that may be totally baseless........I do not think that ends well!