Goldtent TA Paradise

Gold trade practically risk free!

1. Bikoo99 says:

   March 29, 2020 - 8:29 pm at 8:29 pm

   Gold trade: not only risk free but lucrative best arbitrage risk free. here is how Kieth Wiener laid out:
   I do not understand but you may educate me.

   “If gold suddenly becomes much more abundant to the market than it had been,
   then it would be reasonable to expect that the marginal buyer would drop his bid.
   Before we attempt to identify the marginal buyer, consider the arbitrage of buying
   spot (at the offer price) and simultaneously selling a futures contract (on the bid
   price). On Tuesday, this arbitrageur could make 10% (annualized). In a world of
   zero and negative interest rates, where even the 10-year Treasury yields well under
   1%, this should be a pretty attractive trade.
   Yet, for some reason, no market participants were willing to take the trade until the
   profit to be earned hit 10%. Who are these shadowy non-participating market
   participants? We will give a hint.
   To put on this trade, all you need is credit. You borrow dollars, buy gold, and sell a
   future. And, if you think about financial system breakdown and permanent gold
   backwardation, you are even on the right side of the trade. You own a bar of metal,
   and you are short a future. In financial Armageddon, the price of futures will
   collapse at least relative to the price of physical gold.
   So, whatever the reason these shadowy non-participating market participants
   aren’t participating, that reason is not fear of Armageddon. Therefore, the reason
   is: lack of credit. One needs credit to put this trade on, and no matter how
   attractive the trade may be, if you don’t have credit then you can’t play.
   Normally—at least, what has passed for normal in the Fed’s mad monetary
   machine—unlimited credit has spilled forth from the Fed’s spigots like effluent.
   However, this flow is diminishing and/or the thirst for it has been growing.
   This fits with the Fed’s actions as of mid-September 2019, to be the repo lender of
   last resort (of only resort). And, the Fed recently announced that it cut the Fed
   Funds Rate back down to zero again. And, most recently, the Fed announced that it
   will be buying mass quantities of both Treasurys and mortgages. There is now talk
   that the Fed may buy the debt of corporations. All of this flailing is a desperate
   attempt to pump credit effluent from the spigots again. We shall see.
   In the meantime, the banks can’t get the credit they need (something to think
   about, for businesses who have the choice to borrow in gold rather than dollars).
   And this brings us to the answer of who is the shadowy non-participant. It’s the
   banks and/or major funds which are clients of the banks.
   As credit recedes, the net effect is it becomes more expensive. Think of borrowing
   at X% and carrying gold at Y% as an arbitrage. As X goes up, so does Y necessarily
   go up proportionally. And, therefore, the bid on spot drops.”

   May be this trade is not executable.