“The trouble with gold is that it turns its back on world improvers, empire builders and do-gooders.”
—Bill Bonner
February 11, 2025— Every once in a while, traders pile into the wrong side of a trade. And what happens next can be the stuff of legends.
That’s because nothing spoils a great opportunity like too many takers. So, the instant that trade goes sour, big profits can flip to big losses.
The most memorable instance of this was nearly four years ago, with shares of GameStop.
The brick-and-mortar video game retailer’s shares were falling with no end in sight. Eying bankruptcy, hedge funds shorted the stock, pushing the price down even further. In fact, hedge funds were so bearish, they managed to collectively short more than 100% of shares.
That’s where the trouble started. Retail traders, supported by bullish YouTube videos about the company and armed with stimulus checks (what did we learn?), started to buy shares, sending the price higher.
As gains started to evaporate, hedge funds needed to cover. Amid a buying frenzy with no sellers in sight, prices not only had one direction to go, up, but up at a phenomenal rate.
All told, GameStop shares soared from $5 to $350, in just a few trading sessions. Many brokerage firms lost clients, or at least substantial goodwill, by turning off the “buy” button and going to sell only. (Currently, GameStop trades at about $30, after splitting 4-for-1 after the squeeze. So buyers at $5 are still sitting pretty on the equivalent of $120.)
Today, a similar event is on the cusp of unfolding, but not in the stock market. Instead, it’s happening in one of the world’s oldest asset classes: Gold.
To understand why, remember that the gold market is more than just what you buy from your local coin dealer. Central banks own gold, but they often store it in vaults. The ownership changes names in a ledger, but that metal itself doesn’t get moved.
Traders may flip gold futures contracts, which are backed by a set amount of physical gold. But they almost never take delivery. Banks can either be long or short gold contracts, which can impact the price of the metal.
The Jerusalem Post noted that, last August, banks were record short gold contracts. And that “paper” gold amounted to over 120 ounces for every real, physical ounce. That’s allowed for the manipulation of gold’s price via the buying and selling of paper contracts.
But if gold squeezes higher as investors demand the physical metal, as we expect, physical holders could have the last laugh… and some traders and banks could be on the hook for massive losses.
Since the summer, the price of the metal has just been trending higher. Sounds similar to what happened to the hedge funds short GameStop who assumed they’d never get called. Traders who made a small, but consistent profit with gold paper contracts are now way out over their skis.
Meanwhile, over the past few weeks, demand for good-for-delivery gold bars has soared. It’s almost as though someone wants to take possession of the gold they’ve bought and have held in storage for convenience up until now.
In fact, CNN reports that some traders may be waiting for weeks to get gold bars being held securely in the Bank of England’s vaults.
Why the “shortage” now? One theory is that the gold is heading to the United States, to get ahead of potential import tariffs on gold. Another is that the gold was loaned out from the U.S., and it’s needed back stateside.
That may have something to do with a statement made by Treasury Secretary Scott Bessent last week: “Within 12 months, we’re going to monetize the asset side of the U.S. balance sheet. We’re going to put the assets to work…”
On paper, the U.S. owns just over 8,100 tons of gold, valued at just over $543 billion. Earning even a 5% return on that gold by, say, lending it out, would add $27 billion in revenues to Uncle Sam’s coffers, without raising taxes.
Bessent’s plan to monetize America’s assets could be far more than that. The U.S. government is still the largest landholder in the U.S., owning up to 80% of the acreage in some Western States. Income from mineral rights or gradual sales could likewise raise billions annually, taking advantage of America’s natural wealth in a way that doesn’t come from taxing productive members of society.
How poorly has America been utilizing its physical abundances? America’s gold is still kept on the country’s balance sheet at a price of $44.22, last set in 1973 right after Nixon closed the gold window.
Even revaluing gold to today’s current prices and setting that against our total debt would help push our debt-to-GDP ratio notably lower.
Meanwhile, this rising demand for physical gold – and its lack of availability – is like the rising demand for GameStop shares in 2021. A squeeze higher could be in the making.
If you’ve seen Addison’s recent research on the gold market, you know why we feel that the metal has far more upside from here. Addison’s price target for gold is so high, we’ve found that views of the research either spit out their coffee, or nod their head in agreement. There’s no middle ground. And make no mistake, however you react, every day gold moves closer to that price target.
We’ve been pounding the table on gold since the inception of the Grey Swan Investment Fraternity. Our model portfolio contains a way to invest in gold, and we recently issued several research reports for members on specific opportunities in gold-related stocks.
So, no, it’s not too late to buy gold and invest in gold-related stocks to take advantage of a possible squeeze in the months ahead. And, no, you probably don’t own enough of the metal. Good luck finding any.
Regards,
Andrew Packer,
Grey Swan
P.S. If you missed it, you can still catch Jim Rickards’ latest briefing from Pentagon City, just click on this link.
Remember, Addison personally worked with Jim a decade ago to get his Currency War trading strategy off the ground. In last week’s event, Jim warned of a treacherous development he expected would ignite the final phase of the currency war, including the imposition of tariffs from China, and the importance of gold. For details, click here.
Addison is traveling today, but will be back tomorrow. Show the love by sending any comments you have to addison@greyswanfraternity.com
