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Is gold the next asset bubble?

March 9, 2010

Rick Bookstaber has an excellent post up discussing gold, whether or not it is a bubble, and most interestingly, what this tells us about the market.

It’s not much secret that the price of gold has been rising steadily in the markets. What’s more interesting about this however is the very public discussion by many hedge fund managers about how large of a position they hold in gold (or a gold ETF more specifically) and how confident they are that prices will continue to rise.

Bookstaber’s point is this, and it’s well worth considering: given how secretive hedge funds normally are about their investments, why are so many of them publicly pushing gold? It gets even more interesting when you consider that they have been acquiring these positions in ETFs, which have to be reported in their 13-F filings–and with an asset like gold, there are plenty of ways to take a position that doesn’t require public disclosure.

That they are taking a highly visible route to their positions suggests the game that is being played is one of leading the herd. The 13-F reports positions with a big lag, so no one will notice if they quietly slip out the side door while the party is still hopping. And how about when the view is backed up by none other than Goldman Sachs? Will they let everyone know when they think it has gone too far before they get out. Or before they go short? Maybe they already have.

It’s an interesting thought, and worth considering. He’s done a great job summarizing it, so I won’t add anything more than this: when someone speaks, it’s always worth considering where their true interests lie.

Via Rick Bookstaber.

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From → business, finance

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