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Premiums to No Purpose

Stockmarket up, precious metals down. Will the final 'bugs' now throw in the towel...?

Yet more money managers threw in the towel on gold this week, pulling the big gold trust-funds' holdings down to new four-year lows as the Dow closed at new record highs.

Typically in the grand sweep of things, markets need a final surrender to mark the end of such trends.

Because only when the last bull takes all the losses he can and sells - or the last bear quits waiting for a crash and buys - can a market really turn itself around.

London's would-be homebuyers, for instance. Sitting out the surge in prices, a friend who always thought the bubble MUST burst at some point has just given in, and bought a flat. Gulp!

On the other side of the hill, and after getting beaten down by months and now years of falling prices, big-name gold investors are finally throwing in the towel, too. Well, kinda. And who could blame them with stocks up, gold down?

Dow/Gold Ratio

"This year hasn't been good for gold," said David Einhorn, fresh-faced card shark and hedge fund manager at Greenlight Capital, to CNBC on Thursday.

Building his fund's position since 2006, Einhorn switched it in 2009 to physical, allocated gold just like you can trade on BullionVault. Because "at a minimum" it would save him money compared to ETF trust funds.

Today he's not buying more. Which is gold capitulation of a sort. But Einhorn isn't selling. "Just in case something goes really, really, haywire."

Also sticking with gold is the biggest bull of them all, John Paulson. His Paulson & Co. hedge funds' owned $4.6bn of the giant SPDR Gold Trust just before gold peaked in mid-2011.

Halving his holding in that fund (ticker: GLD) as prices crashed this spring, however, Paulson kept it flat between July and October. He ended the third quarter with GLD stock worth $1.3 billion. And this week, says Bloomberg, he reportedly told clients that he wouldn't personally buy gold right now. Because the inflation story he's expected for the last five and six years simply hasn't shown up.

This, we guess, is as good a sign for gold (and by extension, silver) as we've had all year. Because "Gold bugs die hard," as the New York Times said back in June 1999. It's worth re-reading that story today. If only for Jean-Marie Eveillard's close brush with closing his legendary gold fund.

That was amid deafening reasons to quit the market. It was also just before gold bottomed at $250 per ounce, and turned 7 times higher as the financial world, in Einhorn's phrase above, "went haywire".

Today again, "People are finding it hard to find a reason to own gold," one analyst tells the Wall Street Journal. But how about we try insurance, Lehman Brothers, or record-high peacetime Western debt levels?

All you need is an attention span longer than a goldfish's. And deep pockets, of course, to carry the financial loss which all gold and silver bulls who failed also to invest in the stockmarket this year are now wearing.

Insurance pays nothing when nothing goes wrong. That doesn't mean you don't need it. But it does make throwing in the towel all the more tempting when stockmarkets are setting new record highs which you're sitting out.

The thing with insurance, remember, is you also need to own something to insure. Otherwise, unless disaster strikes, you'll wind up paying the premiums to no purpose.

 

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