As of Friday, nearly everything was down significantly (who could forget?)
But as of Monday, gold was still down and silver was trading sideways.
But many of the miners were ... up?
Big oil: up
Sub-prime banks: way up ... too up.
Every other big debt-riddled bank except China's industrial bank and Merril Lynch: up.
Cell phone companies: up
Big tech: up
Big food/grocery: up, up, up
10 year treasuries: up
As of today, most things are slightly up but the AMEX Gold Bugs index is down.
The markets feel a lot like one of those Springfield town lynch mobs from the Simpsons. They chase you down with boards that have nails in them, and before you know it, it's over and everyone goes home. All we need is a monorail to complete the picture :-)
On Friday, 114,000 contracts were traded in Silver. That works out to be 114,000 x 5000oz per contract, or 570 000 000oz of silver! That's hard to wrap one's head around since total world mining output was just 735 million ounces in 2010. Most of that went toward industrial applications. The commitment of traders report last week stated that 4,679 contracts, or 23,395,000 troy ounces were traded last week. That is the net position. Net positions can be short or long. Hedge funds, the funds that were (at least partly) responsible for last week's silver meltdown, usually keep more short positions than long positions, since the purpose of a hedge fund is to bet against the markets in the case of a downturn.
Big banks like JP Morgan are holding a 203.5 million oz short position in silver. But this doesn't mean that the banks actually possess the metal! It means that they have leveraged the metal they do own by creating various investment products that they sell on the markets. With the example of hedge funds, the big banks may have a component of the hedge fund which bets against the price of silver rising beyond a certain point, or falling below a certain point. That means when silver drops in a sell-off, a margin call can be made if the sell-off meets the particular requirements of the investment product, and the hedge fund can posts a gain.
As a friend of mine pointed out, "Welcome to the world of derivatives – the objective posting of a price on anything (interest rates, crops, metals, etc…)allows an exchange to create a product. This product, futures contracts, trade either OTC (over the counter, between institutions and large clients with uniquely structured terms and conditions) or exchange traded.Consider for a minute that JPMorgan Chase’s gross currency position is 250 Trillion Dollars – which is many times more than the total currency in the world."
Here is an example of a leveraged Gold bullion fund compared to the GLD ETF. In this case, the fund seeks to gain 200% of the return on gold. This means if Gold goes up 50%, the leveraged fun will double the return. Only advanced traders should use leveraged funds, as they can both win big and lose big (can you imagine what would happen if Gold LOST 50% of its value?) unlikely in my opinion, but still. This is dangerous stuff. Hedging, on a basic level can still be a good idea though. For example, you might hedge your savings with a few ounces of gold (or a heck of a lot of silver) to protect yourself against inflation. Here is more information on hedging.
