Brad Zigler

Contango's Gold Standard

It's easy to ignore gold's backwardation since there ISN'T any.

Observers looking at the the London bullion market may note, on occasion, negative gold forward rates. That's the implied financing rate for swapping gold and dollars; it's NOT the price differential between metal for spot and forward delivery.

Factor in all the carrying charges (which include, but are not limited to, the premium or discount implied by the forward rate) and you've got yourself a contango.

That contango, to be sure, is fluid. Since the beginning of 2008, the contango for one-month forward gold (loco London) has been as wide as $3.24 and as narrow as three cents.

Another Way to Hedge Gold Stocks

Using DZZ hedges gold volatility, not the equity or management risk embedded in a stock's price.

Thus, with gold volatility suppressed, the value (negative or positive) of the company's management talent shines through (filtered through stock market beta, of course).




On Dec 02 08:59 PM Georealist wrote:

> Just a few things that need some light..First.when someone BUYS DZZ
> they are most certainly NOT hedging AUY or any other mining stock.
> They ARE hedging (establishing a Double Short positions) gold..<br/>Minin...
> stocks move..more thanone would hope..in alternate universes..and
> an investor is certainly not covering specific risk in AUY...
>
> I have a little different take on the whole long position side.....and
> the short. I'd BUY gold (GLD) any time we move to a standard deviation
> below 2 for the 52 week moving average. I'd go long DZZ (in a conservative
> averaging in basis!) at 2 or 3 standard deviations ABOVE the 52 week
> average gold price.
> It's all about the percentages baby...they didn't build Las Vegas
> going all in.