03 August 2015
Michael Pettis argues that a market dominated by speculators tends to be more volatile as it is sensitive to changes (in consensus) in the way news is interpreted. If gold is entirely a speculative market, as I argued in Friday’s post, then we should see high volatility. While gold is more volatile than many other assets and currencies, it is not as excessive as we would expect based on Pettis’ theory. Why is this? I think it is because it is difficult for gold speculators to converge on a consensus view. [read more]
31 July 2015
I have written before on how gold is a pure epsilon asset and driven by narratives. This article by Michael Pettis takes a similar approach to China’s recent stock market problems but he makes a number of observations that apply to markets in general. I think these observations have application to gold in general as well as the current state of the gold market. Michael notes that there are two types of players in markets – value investors and speculators. He says that markets dominated by one or the other type will generally behave differently. [read more]
30 July 2015
So the gold price drops, so the gold forecasts drop. Some recent calls in order of bearishness:
- Deutsche Bank – fair value $785
- Morgan Stanley – $800 under worst case scenario, $1,190 average for 2015
- Claude Erb – fair value $825, will overshoot on downside to $350
- Bloomberg Survey – $984 average estimate by 31 Dec 2015
- Goldman Sachs – could fall below $1,000
- ABN Amro – $1,000 by 31 Dec 2015 and $800 by 31 Dec 2016
- OCBC – $1,050 by 31 Dec 2015
- Capital Economics – $1,050 by 30 Sep 2015, $1,200 by 31 Dec 2015
- UBS – $1,180 average price over second half of 2015
And he stoppeth one of three.
'By thy long gold beard and glittering eye,
Now wherefore stopp'st thou me?
And I’ve told them I am in;
The punters met, the strategy set:
May'st hear the merry din.'
'There was a newsletter,' quoth he.
'Hold off! unhand me, gold-beard loon!'
Eftsoons his hand dropt he.
The punter he stood still,
And listens like a newbie trader:
The Goldbuggee hath his will.
He cannot choose but hear;
And thus spake on that Goldbugee,
And mumbled in his beer.
Merrily did I logon
The trend lines were so obvious,
Nothing could go wrong!
Out from the lows came he!
And he shone bright, and by the night
I had traded profitably.
Till at the peak in eighty-'
The Punter then he beat his breast,
I lose the whole lot matey.
Red as a rose is she;
Nodding their heads before her goes
The merry advisory.
Yet he cannot choose but hear;
And thus spake on that ancient man,
The bright-eyed Goldbugee.
Was tyrannous and strong:
He struck with his o'ertaking wings,
And chased us south along.
As who pursued with yell and blow
Still treads the shadow of his foe,
And forward bends his head,
The ship drove fast, loud roared the blast,
And southward aye we fled.
And it grew wondrous cold:
And bears, giant-high, came thundering by,
As brown as ??.
Did send a dismal sheen:
No bullish shapes did we ken—
The bear was all around.
The bear was all around:
It cracked and growled, and roared and howled,
Like noises in a swound!
29 July 2015
Yesterday Chris Powell of GATA criticised an article by Clif Droke on market manipulation. One point caught my eye, where Chris identified “an ‘ipse dixit’, an assertion made without authority” that Clif made, namely that “the market for gold is immensely huge and virtually impossible for any one entity to control its price swings … Even a coterie of interests devoted to pushing gold prices lower would meet with certain failure due to the enormous size and complexity of the market.”
It is one thing for Clif to claim that one entity could not control the gold market, but it strikes me as quite bold to claim a “devoted coterie” could not do it. To assess Clif’s claim we need factual examples of gold market liquidity so that we can “assert with authority” and solve this ipse dixit problem. Being the gold nerd that I am, over the past few years I have accumulated a number of statements about actual gold market liquidity (primarily because I’ve been annoyed with trite statements about how gold is “highly liquid” without any quantification) and thankfully now I have a use for them. [read more]
27 July 2015
On Friday I posted on the messaging China may have been sending with its central bank gold reserves announcement. Today I will update this analysis from 2012 to estimate how much gold the Chinese government unofficially holds and how much the population holds. I estimate that the total amount of gold in China is approximately 10,950 tonnes, with the population holding 6,490t, commercial banks holding 2,060t and the government, officially and unofficially, holding 2,400t. [read more]
24 July 2015
I don’t want to pick on Societe Generale analyst Robin Bhar, as this was representative of most of the commentary around China’s gold reserves announcement, but the statement that the 1,658 tonne figure “was not unexpected. If anything, it was slightly surprising that it wasn’t more, the market was looking at a figure north of 2,000 tonnes” makes the mistake of assuming that Central Bank announcements are about communicating facts.
So what is the WHY driving China’s gold reserves announcement? [read more]
22 July 2015
I don’t know if this is the case in other countries, but here in Australia the TV news and other media report the USD gold price, not the AUD price. The result is that often gold will only appear in the local news when the USD price does something interesting or achieves new lows or highs, when for local investors the gold price may not have changed much or moved in an opposite direction.
21 July 2015
When the gold price has a big move the news agencies ring up traders for a comment. When I read these articles I’m looking for two things: why do traders think it happened and what do they think about gold going forward. Understanding these consensus narratives around gold is useful as they control large amounts of money and their views influence others. [read more]
20 July 2015
I was just settling in to write an article on the increase in Chian’s gold reserves when at 9:30am the gold price got smashed. Initial news reports seemed to put the blame on the Chinese market, with statements such as “bullion fell to as low as $1,088.05 an ounce … shortly after the Shanghai Gold Exchange opened trading” and “According to ANZ, the sudden collapse in gold prices earlier in Asia was due to 5 tonnes of bullion being dumped on the Chinese market” but it started on Comex. [read more]