These are some of the "classic" articles on the current state of gold, and are especially timely.
My personal belief is that large derivative players (JP Morgan, Deutsche Bank, Goldman Sachs and others) in the gold carry trade (short gold, long treasury notes) were "off side" even before WTC. Now they are in serious trouble because of this outside of standard deviation event (also called a rogue wave). All their black box formulas are based on predictable standard deviations, and they have leveraged themselves into eternity on that premise. I suspect several or all of those institutions will fail, leaving an enormous destabilizing counterparty mess in their wake. Several market trends will massacre them: 1. a sudden drop in the US Dollar 2. a strong rally in gold 3. a sudden spike up in US treasury yields. 4. A rout in stock prices especially the S&P 500, and "big stock" indexes. These players are ALL on the wrong side of this and leveraged to the hilt. The magnitude of this is well beyond the ability of the Plunge Protection Team to stem.
This work by James Puplava describes the time bomb well. The first eight pages is a general review of economic conditions, and may be familiar news to those of you who has been paying attention. The derivative time bomb section starting at page 8 and going to the end is another story, and is not familiar to even alert observers. There is an "after the fact" Pulitzer Prize for someone out there on this incredible topic. It is very important that you read and understand it:
financialsense.com
Probably the two best "out of the box" writers on this aggressive manipulation of gold and the economy are James Grant (well known financial writer, frequent guest on Wall Street Week, etc) and John Hathaway (fund manager: Toqueville). Here is the link to Hathaway, tocqueville.com
and I would really read all the following in sequence, both because he writes well, and it gives you a bit of a timeline of events over the last two years.
The Golden Pyramid
JP Morgan to the Rescue?
Folly of Hedging US Dollar: Overowned and Overvalued
A New Paradigm for the Old Economy
Gold as Theater
(note: there is another good piece by Adam Hamilton about the "delta hedge" which gives background on the various elements of black box formulas, especially what players must do (liquidate) when trades go against them. This is especially pertinent at this moment in time: zealllc.com.
zealllc.com
All these writers have very sound grasps of overpriced (rampant speculation)and underpriced capital (today's resource markets)and it's implications. But, the classic book on this was written by James Grant and is called "The Trouble with Prosperity". He deals with issues of how continually intervening in markets as Easy Al has done creates "moral hazard" (also called the Greenspan put, the odd notion that some Wizard of Oz will save the day) and in turn capital flow distortions and finally bubbles, which then burst. This bursting process is now well underway. A better review of his book can be found here:
amazon.com |
