Hedge Fund Operations in Gold & Gold Shares.
The Final Answer to the Million-Dollar Question:
Why Are Gold Shares Doing What they Are Doing?
As the short interest in gold shares started to increase, it was easy to
excuse the phenomenon as a product of what occurs in markets when active
listed options exist. However, that excuse for the short position now
defies logic because the short side of the gold shares exceeds the open
interest for the appropriate options that would apply.
Are you totally perplexed by the action of gold, which is robust, and the
action of the shares which is debilitated? Have you noticed that when gold
strengthens, the shares hit a brick wall? Yes, I know you have but have you
seen the timing of that strange and contradictory occurrence? The answer to
what is going on is shouting at you if you have the ability to see the
charts in real time on a one-minute bar overlaid as shares over gold. You
will see that as gold is being purchased, the shares are being shorted.
What has occurred is that major ratio traders (those who develop
mathematical relationships determined by back testing to balance potential
loss and gain on either leg which is subsequently adjusted to their bullish
or bearish desires) and hedge funds are the source of the gold share short,
being long gold and short the shares. In truth, I cannot blame them where
the gold producer hedgers are concerned but it seems they may have gone
bonkers with this spread and simply shorted all listed gold producing
companies from 100,000 ounces per annum and up. It also looks to me as if
there might be a little hanky-panky going on since the short of certain
shares seems to exceed that which is reasonably available to borrow. A
requirement of a short sale is delivery of shares. These shares are
obtained by borrowing. Every major brokerage concern has a loan clerk for
this purpose. Only shares on margin are automatically available for
lending. Fully paid shares require permission of the lender to qualify them
as available to the short seller.
I have given you one lesson on felony 101: explaining how probabilities
support Enron as being the yet to be discovered largest money laundry to
have ever existed. I will also give you a felony lesson on how to short
sell a listed stock without an up tick: back the sale through Canada or
elsewhere over the counter where delivery laws are different. This is a key
reason why some stocks face inexplicable bear raids on NASDAQ. Now please
do not be tempted to employ these illicit strategies. They are only
explained so you will understand market phenomena.
So, in my opinion, the short of gold stocks culprit now is identified as
Hedge Funds and Hedge Operators long gold and short the shares. The
interesting point is that these funds plan to sell gold between $372 and
$386 into the Iraq invasion with a plan to cover the short gold stock on a
gold bullion price pull back after the invasion.
What have the Hedge Funds gotten wrong?
Why are these hedge operators going to be hurt financially on this play?
First and foremost, they have the wrong price at which gold will potential
top in the short-term top as we begin the transition between Wave#1 and
Wave # 2 of this long term gold bull market. I believe I know the right
gold price number but am not eager to put it in print so the hedge funds
can hurt the community gold stock traders that they are already taking
advantage of.
For those that wish to know the gold price that maximizes this leg, please,
if you are not already on my email list, go to www.tanrange.com and
register on this site. That way you will go on my private list
automatically and save my staff a great deal of work and potential error in
your email address. I will have the list carefully reviewed.
I will soon email you an attempt to do the impossible. That is outlining
the future of gold in terms of time and price. You will have to bear with
me knowing, as I do, the impossibility of such a task. I will present it
twice under two different conditions. However, we will constantly monitor
progress as the ability to predict from point to point, the gold price is
doable, or at least it has been so far in my career.
The Hedge Fund Errors
1/ The Hedgers & Hedge funds are going to exit the futures on gold at the
wrong price thereby leaving themselves increasingly exposed to the debits
developing on their gold shares position.
2/ The Hedgers & Hedge funds have shorted the gold shares too hard in light
of the relatively small floating share supply. In some cases, as I see it,
the entire float on certain issues may well be shorted.
3/ The Hedgers & Hedge funds are not familiar with the tenacious nature of
the gold share investor vs. the gold share trader and therefore will not
get the volume of selling they are hoping for.
Conclusion:
As gold approaches the $381 to $386 price level, shares will start to firm
and gold's momentum will slow slightly. This will be due to the operations
of the Hedgers and Hedge funds getting ready to rake in their expected
profits. However, as gold trades into the middle $390s you will see the
gold shares start to move ahead of gold momentum-wise as some of the faster
and smarter hedgers will see an abyss of losses opening in front of them.
As gold passes $400, which will be to almost everyone's surprise, the
Hedgers will panic and gold shares will go ballistic.
These gold share shorts, in certain instances, are simply too large and
therefore cannot be covered under any circumstance that I can envision.
Like the mountain of derivatives, the hedgers have gone wild in this
shorting of the smallest capitalization that can be found in any publicly
traded industry, the gold mining industry.
What "fundamental factor" have the Hedgers and Hedge funds forgotten that
will totally bury them in their gold share shorts well after the Iraq
invasion is history?
The mistake made by these greedy hedgers and hedge funds is the definition
of the USA going it alone. What that means is that no one will share the
cost of the operation with the US but, more importantly, share the cost of
reconstruction of Iraq and its modernization. I gave you a must read in the
current issue of "Foreign Affairs." Basically a mouthpiece of the sitting
administration, this journal tends to reflect foreign policy trends
relatively well. Reading it that way, and not critically, it can be a
useful tool in understanding the impact of international politics on
markets. I have already told you that since Lawrence of Arabia, the mistake
made by the West concerning Middle-East matters have been the same. We
fight battles and then, as recently as the Iraq invasion, leave the results
in the hands of anything from despots, international criminals to our sworn
enemies. As a result, the Mid-East situation for their citizens never
changes, but in our terms simply gets worse.
This invasion will be followed by a rebuilding of Iraq as Bush will not
stop the fight unless Hussein and bin Laden are history, or more likely,
occupying the same hut somewhere in Upper Mongolia.
The cost of this invasion, assuming a short war and the rebuild, is well
over one trillion dollars. That will be paid for by expansion of the
monetary aggregates. As a result of "going it alone," the USA, who will
bear at least 90% of this cost, will gain from the business demand but lose
on the impact of all this on the US Dollar. The US Dollar is building
multiple head and shoulders, as did Enron and General Electric, with a
dollar downside maximum potential well under the low I have suggested to
you at 72 on the USDX. This insures that gold will find its way back into
the system to prevent the multiple head and shoulder potential for the US
dollar from becoming real market prices.
In the final analysis, the War against Iraq will help business activity and
hurt the dollar. Gold will rise to a level not expected by the Hedgers and
Hedge funds will react and return to the second leg of the long-term bull
market from a reaction low so high as to nail the Hedger and Hedge Funds.
That low in the reaction to come could even be higher than gold is today.
Recommendation to the Gold share investment community:
1/ Do not let these hedgers spook you out of your shares now. They
certainly are trying as of this evening's close. Look at the fight on RGLD
as it tries to make new highs today. Who do they think they are kidding?
Not an old pro like me.
2/ Get ready for gold shares to improve in their performance quite soon.
3/ All of you who have fully paid for your shares take delivery immediately
and do not take no for an answer. Most web based brokers have never had a
client ask for delivery of their securities and some have actually said
they are uncertain of the mechanism.
4/ All of you that are on margin long gold shares, shame on you. But after
saying that, the instant you make a sale and as a result eliminate your
debit, order delivery of your shares and do not take no for an answer.
5/ Go to www.tanrange.com and register. I will email you the best guidance
I can. Please remember that I am a seasoned trader and major market risk
taker but not a seer.
Below is an example of a few short situations in less than leaders in the
gold field. I am also including a link to an interesting article on gold
that appeared in Gold-Eagle.com:
gold-eagle.com
Click on the following link to view full editorial including associated
table:
tanrange.com
============================================================
Copyright (c) 2002 TAN RANGE EXPLORATION CORPORATION (TSXV-TNX) All rights
reserved. For more information visit our website at
tanrange.com or send mailto:info@tanrange.com
Message sent on Mon Jan 27, 2003 at 5:08:00 PM Pacific Time
=========================================================== |
