April 5, 2008
Jim Sinclair’s Crazy Bet
Gold Bears: Put Your Money Where Your Mouth Is
“My position on timing and price is that Gold will trade at USD $1650 before the second week of January 2011.
I am offering a $1,000,000USD wager to a financially qualified party that this will occur within the stated timeframe.”
I wanted to take Sinclair up on his bet, but my wife nixed it. I’m not a gold bear but it seems like a bold guess: $1650 before the second week of January 2011 assumes a pretty steady rate of ascent. What do you guys think? Maybe we can pool smaller amounts of money to evade wifely approval and call Sinclair’s bluff.
2008.04.07.AM UPDATE: A look at the volume-at-price chart for spot gold. See the pretty bear flags as price waves lower.
Cat: | Time: 4:21 pm (utc+8)
April 5th, 2008 at 10:36 pm
dude- ur in a 200 k apartment in beijing and u want to take up the bet. get some money first.
April 5th, 2008 at 10:50 pm
but by then $1mil usd will only be worth $100. surely you can afford to lose that.
but gold has all the makings of a monster parabolic move to comical lvls- although its already had two big leg moves i wouldnt be surprised if it goes 1999 cmgi/qcom/yhoo/aol/arba/pmcs/etc on you. when my dad brings up gold then ill know its done.
April 5th, 2008 at 11:03 pm
@adam: I conservatively value the Beijing apartment at $200K though the market value is supposedly $750K now. And then there are all the other properties. And don’t get me started on liquid assets, lol. I’m a financially qualified dude, dude. :-)
@pete: Right, he’s going to pay off the bet in USD when he loses, not the gold equivalent… he’ll never let go of the goooooold. If he doesn’t get a steady 20-something percent annual return on it between now and then he’ll have to pray for a parabolic (which he may get, who knows).
April 6th, 2008 at 1:39 am
Hey, why dont you price up a binary option with a $1mil payout with your favourite broker and hedge yourself ? I did some back of the envelope calculation and came in at just $200k so you only have 20% of the downside !
April 6th, 2008 at 2:24 am
hi Maoxian,
just buy about 1350 gold futures contracts, that will earn you one million if gold hits 1650. You only will lose if gold trades below USD 170 in Jan 2011.
April 6th, 2008 at 2:33 am
ahm, better buy only 13,5 contracts…
April 6th, 2008 at 4:46 am
“My position on timing and price is that Gold will trade at USD $1650 before the second week of January 2011.”
He wins if the price of gold goes above $1650 any time between now and Jan 2011. So it could get there and all the way back down by then and he would still win.
April 6th, 2008 at 8:37 am
@Tamas & Markus: I don’t know anything about options, but thanks for the ideas.
@Lawrence: OK, but that’s an even less realistic stance because then he’s *counting* on another parabolic move between now and then.
April 6th, 2008 at 9:11 am
There’s been a lot of discussion around about hedging the bet and whether that will allowed. He does require $1million to be put into an account right now.
April 7th, 2008 at 12:28 am
Chairman:
Your wife is a good risk manager of your assets. IMHO even if you have liquid assets of about 5 million USD it would be not wise to risk 20% of them on one bet (especially if you no clue about the odds).
Cheers,
Markus
April 7th, 2008 at 5:19 am
Take up the bet, then hedge professionally and (or) lay off the risk to your readers and friends, allowing them to buy parts of the bet, thus reducing your risk. (Not sure if that is somehow illegal).
April 7th, 2008 at 6:50 am
cm: Why go against the trend? After showing my little nephew the chart, I ask him if it is possible for gold to go up before 2011, he gives me a definite ‘Yes’. I am with him in this case. ;-)
April 7th, 2008 at 7:42 am
Maoxian,
Interesting that with all those trading lessons that you used to have up, you have forgotten about risk management. Odd, no? Would you risk $1 million only to make $1 million? You certainly wouldn’t.
April 7th, 2008 at 8:02 am
@Markus: Yes, she is, like most wives.
@Finn: I’d lose my twelve readers if we lost. :-)
@brandon: I am a fan of trend following and can see that gold is in a solid uptrend, but I’m also a fan of fading the crazy boasts that appear at the end of massive moves.
@KC: Good point, I prefer to see the maximum expected loss be a fraction of the minimum expected gain.
April 7th, 2008 at 1:09 pm
I would definitely take Jim’s bet if I have USD 1.2 million to park in cash. USD interest rates are likely to stay low for the next 3 years and the bet is close to zero risk, even without the use of options.
1. Buy 13,333 shares of GLD at 90 for USD 1.2 million based on Friday’s close.
2. If gold goes to USD 1,650, sell the 13,333 shares of GLD for 165 for USD 2.2 million. Pay Jim USD 1 million and get your original USD 1.2 million back.
3. If gold does not go to USD 1,650. Get USD 1 million from Jim and you still have 13,333 shares of GLD.
The only way to lose money is if GLD drops below USD 15, which is highly unlikely.
Max loss of USD 200,000 if GLD becomes worthless.
Max gain of USD 2 million if gold ends up just short of USD 1,650.
That’s a trade with 10R potential.
April 7th, 2008 at 5:56 pm
How do we know Jim will pay up!?
Good points Brian
April 7th, 2008 at 5:58 pm
Rod: He’s good for it… like me he’s in the newsletter business, lol.
April 8th, 2008 at 4:10 am
just to pick ur thoughts on risk management- at what rough % of probability of winning would you accept 1:1 risk:reward
April 8th, 2008 at 8:01 am
pete: Not less than more than half. :-) Seriously, I really need to see maximum risk be a small fraction of minimum reward because in my experience, the win rate just isn’t very high. I never tire of saying that the best trader I know loses on more than 2 out of 3 trades (i.e., he’s “right” less than a third of the time) — and he’s fabulously successful.
April 8th, 2008 at 9:50 am
$1,650 GOLD by Jan 07, 2011 — EASILY… imo Sinclair’s proposition is actually fairly conservative (and far from being “bold”)… the one area one definitely should not be bearish on is precious metals — always THE place to be when inflation is accelerating…
April 8th, 2008 at 9:54 am
v838: I’m assuming the market has already discounted inflation/dollar depreciation for the next several years. As soon at spot gold hits $1650 I’ll be the first to issue a Cramerian I wuz WRONG!
April 8th, 2008 at 9:59 am
the as always clueless & myopic “market” is so far behind the curve ball when it comes to discounting inflation and the US dollar it is comical… the US bond market is case in point… far from “several years” out… what we are seeing is acceleration and increasing instability………. outta time right now, so will continue tomorrow…
April 8th, 2008 at 10:02 am
v838: I have more respect for the “wisdom” of the market than you do, I guess. As the great Leon Levy was fond of saying, the market is “pretty efficient.”
April 8th, 2008 at 4:03 pm
“I never tire of saying that the best trader I know loses on more than 2 out of 3 trades (i.e., he’s “right” less than a third of the time) — and he’s fabulously successful.”
Chairman, it depends on your timeframe and trading style. E.g.: My timeframe is minutes and more than 70% of my trades are winners, but my losers are twice as big as my winners (commission always included). Still I am profitable.
Cheers,
Markus
April 8th, 2008 at 4:50 pm
Markus: But are you bald? This is the real question. :-)
April 8th, 2008 at 5:05 pm
Chairman: In the late thirties with a lot of brown hair. Maybe the controlled stress factor of my trading keeps it from turning gray. Neither bald nor bold. ;-)
April 8th, 2008 at 5:11 pm
Markus: Surely the crown is a bit thin and it’s receding just a bit in front, c’mon man, own up. :-)
April 8th, 2008 at 5:16 pm
To be honest: The crown is full and thick. The front is a little bit receding, but my grandma told me long, long ago that this looks quite virile. :-))
April 8th, 2008 at 5:27 pm
Markus: Ha! We have the revelation of a receding hairline, however virile. :-)
April 8th, 2008 at 11:18 pm
‘fabulously’ - anyone who uses any derivation of the word fabulous sends up the red flags.
April 9th, 2008 at 6:34 am
pete: I note some sexual insecurity. :) The only problem with fabulous is when it’s preceded by “absolutely.”
April 9th, 2008 at 9:11 pm
boatloads of insecurity of all types.
ur fabulous just throws another twist in the wife/tgif chicks/gratuitous cute chick posts
April 9th, 2008 at 9:37 pm
pete: I’m a complicated character for a simple country boy.