Observations on the market action and the implications of the gold and silver markets.
Saturday, December 29, 2007
Lowest Short Position
In the December 27 session on the TOCOM Goldman Sachs covered a huge 1,722 short contracts and went long 2 contracts to bring their net short to 6364 contracts. This is the lowest net short position they have held since January 2006.
To put this number in perspective, their biggest net short positon was about 52,000 back in the second quarter of 2006.
It looks like the boyz, the big time insiders, are getting out of Dodge.
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I'm sorry, I'm fairly new to the trading world... what does this mean exactly?
I have the same problem! I am missing the point of "lowest short position". Can the author educate us a little more?
Short means betting the price of gold will go down. By closing out short positions, Goldman is betting the price will go up.
Just a few weeks ago, Goldman said shorting gold was a good strategy, yet since then they have been doing the opposite, and going long.
This is similar to what they did in subprime, selling subprime as AAA debt, while betting against it knowing it was garbage. Pretty blatent.
I too am confused. I wikied short selling, however, and sort of understand it. Others please correct me if I'm wrong, but it appears that if one wishes to profit from the a price decline of a commodity, one essentially borrows the commodity to sell it now (in the hopes of getting a higher price) to be able to repurchase it later at a lower price. Hence, if you believe the gold price will decline, you "borrow" someone else's gold position who is going long, sell that gold and then with the proceeds buy it back at a lower price. Therefore, if Goldman Sachs has a low short position, it would appear that the firm is betting that gold prices will continue to rise. Again, others please help me with this....
I guess the part that confused me was the line "TOCOM Goldman Sachs covered a huge 1,722 short contracts".
If 'covered' means closing out then it all makes sense. I thought it meant that they took on the short contracts... but then he mentions that they brought their total 'down' so it does make sense but needs a little decyphering for us newbies who don't understand all the jargon.
Looks like everyone is counting on the price increasing... I hope they're right.
Thanks guys and happy new year..
Goldman Sachs like many other traders have both Short and Long positions. Short positions means they profit if the price falls. Long positions means they profit if the price rises. Why do they keep both positions? So that they can trade and profit at different times when volatility is high. Now here lies the interesting part, while they are openly telling everyone to Sell Gold, they are quietly buying up Gold ... pretty much meaning "Do as I Say, but not as I Do"!
If someone wants to short a stock, they get their broker to borrow some shares from someone. They now owe someone shares, not "money".
They then have their broker sell the shares. The "money" from the sale goes into the account of the person that sold the borrowed shares.
Later on, if the price of the shares went down, the person who borrowed, and sold the borrowed shares, can use **some** of the "money" in his account to buy back the shares that he owes. He can keep any "money" left in the account from the original sale of the borrowed shares.
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