09 September 2009

Bubble top indicators

The report that Hong Kong requested the return of its 2 tonnes of gold to be stored in its new vaults and its suggestion that other Asian countries do the same and store their gold with them resulted in a wave of uninformed hype.

Statements like “the move deals a significant blow to London's historical role as a global hub” (from the aptly named Fool.com) and this weird non-article from a Marvin Clark that is all questions and no answers or opinions are typical of the new breed of gold commentary.

With reported central bank holdings of 30,000t, how can anyone think 2t is “significant”, even if the whole lot had been short sold by whoever they had it “stored” with? As one wit commented, “I moved my BBQ from my mom's house to my house last week. According to the vague premise of this mysterious 'logic', my BBQ must be going up in price soon!” They are in the running for my quote of the year.

I would also note the similarities between the Hong Kong announcement and this report on Dubai: talk of Dubai a “natural choice” for central banks in the region, Dubai to be home to gold backing an ETF. Well, they can't all be. These attempts at cracking London's fix (pun intended) on gold trading and settlement occurs with some regularity and is met with a yawn from experienced gold players. Every now and then a country tries to become a “bullion centre”: Shanghai, Thailand, India. They never get off the ground because the rest of the world doesn’t trust them, or trusts them less than London.

Unfortunately, I have noticed an increase in gold commentary from people who have no experience in the gold markets, and it shows. I suppose if no one wants to read your opinion on a leverage stock play, what else are you going to do but write about what is hot, even if you know sweet FA about it.

Editor to Journalist: “hey, gold seems to have passed some magic number, go write something on it for tomorrow's paper.” Journalist searches for last newspaper article on gold, does a google search and picks up some third hand commentary which misinterpreted “Gold ETFs allowed for EFP transactions” into “Gold ETFs allowed to settle COMEX futures”, and mashes it all together with some clich├ęs and there you have an article for consumption by the general public who believe that the financial journalist knows what they are talking about.

I am thinking of starting an index of commentaries on gold and more specifically, the number by those who have never commented on gold before. I think it would make a very good bubble top indicator to be used along with the “receiving stock tips from a shoe-shine boy” (today to be substituted with taxi drivers I suppose). The number of Kitco forum posts might also be good, particularly the occurrence of the text “to da moon”.


  1. Hi Bron,

    See what you think about this article from GATA;


    I think he has a case with this one.

  2. Thanks Justin, I'll have a good look at it tomorrow. One thing I'm not sure about is the problem of cash settling. As long as it is done at market prices, then the long side can just immediately use that cash to buy physical gold, if they want.

    He is right about shareholders losing. We know about that in Oz, just look what happened to Sons of Gwalia!