Gold and Hedge Funds

November 17, 2008 Gold Stocks, Market Updates, Physical Gold No Comments

Good morning!

Another fun Monday coming our way. The markets have been all over the place. The DOW has been as low as 8,250 and as high as 8,550. Currently the DOW is up 16 at 8,513 and the NAS is up 3.50 at 1570. Gold has been trading the same, from the low 730s to the mid 740s and currently is up $2.60 at $744.90.

Let’s take a look at hedge funds and their effect on the market. All hedge have different redemption rules. Some have 90 day notices before redemption is allowed some have 30 day notices and others have less. This September saw a bunch holders give their notices for redemption in January. This coming Saturday the 15th is another redemption notice day or as they say a “D-Day”.

I wonder if the that is an acronym for “dump day”. Hedge funds have been hit hard in this down turn like everything else in the market, so it is no surprise that holders want to staunch the losses and move to safer ground. This October saw 10 billion leave the hedge funds. This does not bode well for the DOW and the NAS. When people want their money back, the funds have to raise the capital to pay them and that comes from selling positions. As this accelerates it begins to feed on itself and the result is not good. Some funds may try to restrict redemption’s, but that is only possible if their lawyers have added enough fine print in the conditions section. I don’t see a lot of that coming, but then this whole ball of string is just starting to come unraveled. Once again, not being an “expert” on hedge funds, I am only telling you what I see coming out of this whole mess and it definitly is not a rebound in the general stock market. Time will tell.

This will have an impact on gold in the short term because the hedge funds that have gold in them will be liquidated as well. If anyone knows how to find out what the percentage of gold stocks are in the hedge funds, drop me a note because I would love to know that stat.

This will play out shortly and and we will know one way or the other. I believe as we head into the next market down leg that the money on the sidelines will want to move into the only sector that has been producing strong quarterly gains and positive cash flows. The only sector that fits that description is the resource sector.

G-20 Produces Zip

One comment on the G-20 meeting of this past weekend. Nada, zero, zip and zilch. Nothing of substance came out of the meeting, except that they agreed to meet next year. Boy that’s a relief. I think the market was expecting some coordinated action out of the meeting and will be disappointed. Don’t hang your hopes on the next meeting.

Till next time. good luck and good trading!