Sun, Jan 27, 2013 - 9:00am
As we move at crawling speed towards the end of the current consolidation pattern, I am considering 3 main ideas: The first is calculating when the pattern will end. The second is recognising the signs which will confirm it's end via realtime observation. Third is the killer trade to exploit the answers to 1 and 2 above. I suspect that since metal swaps are at the base of price supression, an early diagnosis can be made from looking at the swap structure. This for bullion banks or their colleagues to sell the future and buy the spot. In so doing they exploit zero interest rates. That's because the ZIRP provided capital at xero cost to fund a carry trade over time. That is to say that state sponsored free money enables the price supression mechanism, and the end of extremely low cost carry trade capital will cause the end of precious metal price supression. Now I expect that interest rates will go negative before TPTB throw the towel into the PM ring. But that time is relatively close. It seems clear that the beginning of the next PM bull will be simultaneous with a rise in interest rates. Now if the Japanese screw with the JGB, (Kyle Bass post xmas interview) and manage to torpedo world bond markets, this will set a few big dominoes crashing against each other, and when it comes home to the dollar bonds they will start falling. But it doesn't have to be the Japanese that set it off. I do think however that bond yields are the key to the lock of our PM treasure box. So the 3rd question still stands. How to create the ultimate, non counterparty backed, non margined asymmetrical bet? Something like 1000:1 would be nice! Buying future deliveries of PMs for a small present day fee comes close. The streaming companies have it, but surely something else, or structure of other things, can be made to embody the same characteristics at a lower valuation? Ideas for THE BIG TRADE would be welcome, and also critiques of the reasoning above.
Edited by: argentus maximus on Nov 8, 2014 - 12:17pm