via 321Gold - Regarding Sell-Side Positions

1. Institutional analysts tend to move a lot of liquidity during the first week of January. This action in gold stocks is definitely going to be noticed by many of them. I believe that GDX is poised to quickly surge to the $55 area highs, and then to the all-time highs, near $66.
   
   
2. The phenomenally bullish price action is likely being fuelled by short covering. Many leveraged speculators were sure that mining companies were too low on cash to be able to continue operating for much longer. They began aggressively shorting these stocks during the recent decline.
   
   
3. The short-side players have probably underestimated the ability of mining companies to raise capital when their backs are against the wall. They may have also underestimated the amount of liquidity that institutional money managers are prepared to allocate to gold stocks during the first week of 2013.

source: http://www.321gold.com/editorials/thomson_s/thomson_s_010113.html

The abolishment of the 'no-down-tick' rule in 2011, coupled with a drastic curtailment of production and stockpiling of ore in 2012 and a major price correction in gold all contributed to an aggressive feeding frenzy of naked short selling in GBN.V shares. There were few buyers if any, some long term shareholders sold. Pricing in the stock became capricious, seemingly without any fundamental.

Brokerages and traders sold shares first who did not own any, in order to raise capital for a hedged position in long-dated treasury futures. Bank clients looking for a yield also bought into contracts with the underlying obligation to buy back naked shorted shares, believing that gold companies were finished. Banks provided lending so that clients could buy these contracts and make money on the spread between benchmark lending rates and contractual yield.

The preferred vehicle of this strategy is the equity swap. The last reported short position by Bloomberg was a negative number, meaning a negative carry. The percentage of the float that was negative carry was the entire publicly held float of GBN.V shares, not held by insiders and Sprott.

People have forgotten that readily available contractual obligations e-mailed to clients do not make for a hard asset. The miner is the hard asset, not the equity swap.

-F6