Monetary Metals - paper gold is rising, May 1 report. Here's the important bit:
The trend for the past few months is that carrying is more and more profitable. What does that tell us? It means that more and more firms will enter the [gold] carry trade. A profit attracts people, for some odd reason or another having to do with wanting to make money or something.
Anyways, we know that more market participants are carrying metal because it’s more profitable than it was. Whatever number of people wanted to do it when the profit was 7 cents, we know that more will do it for 14.
What is this telling us about the state of the market for metal? If more and more metal is going into carry trades, then the marginal buyer of metal is this trader who carries metal—whom we often call the warehouseman. The marginal demand for metal is to be carried. This is a dangerous state, because when it flips around, then this marginal demand disappears and then the marginal supply of metal is coming out of carry trades. This is hardly the picture of a shortage driving a durable bull market.