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DrStool

Reversal Night 3/24/20

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So I take it that OTC prices are way above Futures on CME. The futures are depressed by market markers going short gold. So EFP isn't possible. Still not sure why refiners are shutting down if they have demand for product. 

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Daily cycle indicators have broken out. The downtrend is broken. 
 

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Futures markets are built with expectations/capacity foe delivery of the underlying. 
which is to say, their original purpose was to support/finance/hedge real economic activity. 
Like the corn or hog farmer, who sells production into the future at a price today that assures profitability. 
Or the sausage maker or breakfast cereal maker who buys those same futures. 
Typically, futures are settled for cash: then parties use resulting cash to purchase in spot markets. 
But there are strict rules providing for physical delivery of the underlying.
Given the financial panic & resulting scarcity reported in physical gold markets, longs may be looking to take delivery upon expiration... a delivery that parties never presupposed when those contracts were first created. 
This will require some normalization - to bring spot/scarcity into connection with futures pricing. 
It’s an aggravating problem if sources for gold - refiners - aren’t working. 
 

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(Better: “Typically futures positions are simply reversed, leaving party with net gain/loss...”)

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1 minute ago, Jimi said:

Futures markets are built with expectations/capacity foe delivery of the underlying. 
which is to say, their original purpose was to support/finance/hedge real economic activity. 
Like the corn or hog farmer, who sells production into the future at a price today that assures profitability. 
Or the sausage maker or breakfast cereal maker who buys those same futures. 
Typically, futures are settled for cash: then parties use resulting cash to purchase in spot markets. 
But there are strict rules providing for physical delivery of the underlying.
Given the financial panic & resulting scarcity reported in physical gold markets, longs may be looking to take delivery upon expiration... a delivery that parties never presupposed when those contracts were first created. 
This will require some normalization - to bring spot/scarcity into connection with futures pricing. 
It’s an aggravating problem if sources for gold - refiners - aren’t working. 
 

Thanks Jimi! This is why I don't trade gold. I didn't even know refiners were shutting down. 

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Delivery is interesting stuff. 
https://www.cmegroup.com/education/courses/introduction-to-precious-metals/what-is-the-precious-metals-delivery-process.html
 

There’s been a long-standing coeur de cri among gold bugs: “Take delivery!”
The idea is that the paper markets are so much greater than the available resource, that demand for delivery would break what some think is an unreliable & manipulated spot price of the underlying. Some go as far as to insist that parties sell large futures contracts to manipulate the spot price - I’ve never been convinced  

IIRC, Potatohead started a fund years ago that does take delivery and assigns specific lots of ownership to underlying bullion - specific marked bars. He provides vaulted underlying ownership to bullion, not paper exposure of the sort available in futures markets that may not provide for delivery in a crisis. Storage comes with a fee - which is why delivery is usually eschewed in futures markets, because you just trade out of the position with the gain/loss and buy in the spot market  

But if the spot markets go illiquid, and you really want the underlying, the storage costs for PH’s fund is cost-competitive insurance against one’s own private bunker.

 

 

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Just now, DrStool said:

Speaking of CME Short at 210. Now 147. Is that a lot? 

Technically, that’s “an odd lot.”

😂😂😂

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and don't get me even started on Silver :lol:

I mean the whole silver market was owned a few decs ago by one single South African family. It wasn't even a real family, it were two brothers. :lol::lol::lol:

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