Keep in in mind this egg is golden only because investors and traders have agreed upon its notional value. After an article I wrote last week, I was somewhat surprised by the volume of comments supporting my argument. In all fairness, I wanted to prove my point that while I do not find them acceptable as long term investments, GLD, SLV and IAU are fine as short-term trading vehicles.
To prove the point, I sent the following 2 tweets:
CFRN DeWayne Reeves: GLD - Test as promised - consider buying 152.10 Stop (9:46 p.m., Dec. 28)
CFRN DeWayne Reeves: IAU - test as promised - consider buying 15.25 Stop (9:50 p.m., Dec. 28)
GLD brought in a 2.7% return over 2 days:
IAU yielded a 2.8% return over 2 days:
Commodity prices fluctuate (in theory) based on supply and demand. Bad Soybean crop? No problem -- we'll plant more next year. Strait of Hormuz blocked? No problem -- we'll drill elsewhere. Running out of gold? Now there's a dilemma. We can't plant it. We can't manufacture it. There's only one solution: Print, baby, print!
Without a way to manipulate the price of a non-renewable commodity, the price might just go through the roof. If that were to happen, some very large short players could get hurt very badly. Perhaps some players who are just too big to fail.
And look on the bright side: Without exploring, digging or endangering the planet, we created an annualized return of over 200% out of thin air. No Wall Street pedigree, no co-located servers, just a $300 laptop from Wal-Mart (WMT) and we ripped a hole in the very fabric of the universe.
Remember this: God shut down production after the 7th day, but you would never know it based on current market activity and prices. So go ahead, party like it's 1849. But know this, and know it well -- the day is coming when group consciousness will realize with alarming clarity and certainty that not only does the Emperor have no clothes, he has no gold to buy any.