Speculators, value investors and gold

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]

Forecasts, forecasts, everywhere

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

Towards the end of 2010 I started recording forecasts in a spreadsheet, as I noticed many analysts revised their forecasts frequently in response to moves in the gold price. By 2012 I had given up as it was a lot of work to make one point – that in general analysts were just following or projecting the trend.

 

The chart below shows the forecasts I accumulated from late 2010 to early 2012 (the clustering around July are yearly average forecasts) and I’ve added in the recent ones above. [read more]

 

Bonus:

 

Some may recognise the influence on the post title. I started to muck around with the original but haven't been able to get too far. Maybe those with more creativity could make some suggestions. Not sure what the Albatross should represent.

 

The Rime of the Ancient Goldbugee

 

It is an ancient Goldbugee,
And he stoppeth one of three.
'By thy long gold beard and glittering eye,
Now wherefore stopp'st thou me?

 

The Hedge Fund's doors are opened wide,
And I’ve told them I am in;
The punters met, the strategy set:
May'st hear the merry din.'

 

He holds him with his skinny hand,
'There was a newsletter,' quoth he.
'Hold off! unhand me, gold-beard loon!'
Eftsoons his hand dropt he.

 

He holds him with his glittering eye—
The punter he stood still,
And listens like a newbie trader:
The Goldbuggee hath his will.

 

The Punter he sat on a stone:
He cannot choose but hear;
And thus spake on that Goldbugee,
And mumbled in his beer.

 

'My account was cleared and I did cheer,
Merrily did I logon
The trend lines were so obvious,
Nothing could go wrong!

 

Gold came up upon the morn,
Out from the lows came he!
And he shone bright, and by the night
I had traded profitably.

 

Higher and higher every day,
Till at the peak in eighty-'
The Punter then he beat his breast,
I lose the whole lot matey.

 

The Fund hath opened its doors,
Red as a rose is she;
Nodding their heads before her goes
The merry advisory.

 

The Punter he beat his breast,
Yet he cannot choose but hear;
And thus spake on that ancient man,
The bright-eyed Goldbugee.

 

And now the BEAR-MARKET came, and he
Was tyrannous and strong:
He struck with his o'ertaking wings,
And chased us south along.

 

With sloping masts and dipping prow,
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 now there came both mist and snow,
And it grew wondrous cold:
And bears, giant-high, came thundering by,
As brown as ??.

 

And through lines the poor chart signs
Did send a dismal sheen:
No bullish shapes did we ken—
The bear was all around.

 

The bear was here, the bear was there,
The bear was all around:
It cracked and growled, and roared and howled,
Like noises in a swound!

Gold market liquidity and manipulation

 

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]

How much gold does the Chinese Government really have?

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]

The message behind the Chinese gold reserves announcement

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.

 

As Ben Hunt says, Central Bankers “are all playing the Common Knowledge Game as hard as they can … if you don’t listen to what is being said in the context of game-playing, then you are placed at a disadvantage versus those who do. You will not understand the WHY that exists behind the public statements.”

So what is the WHY driving China’s gold reserves announcement? [read more]

Where to for Australian gold price

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.

 [read more]

What’s the spin on the gold smash

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]

Dissection of a gold price smash

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]

Where did 110 tonnes of CME Hong Kong gold go?

Thanks to Ronan Manly, we have found out that 110 tonnes left Hong Kong warehouses between Dec 2014 and mid-March 2015 http://research.perthmint.com.au/2015/07/17/where-did-110-tonnes-of-cme-hong-kong-gold-go/

You can’t draw horizontal lines on a GLD chart

In the case of GLD (and pretty much all metal ETFs) drawing horizontal trend lines, support and resistance levels, Fibonacci levels and so on can be misleading as the gold backing each share declines over time. I've never seen any technical analyst mention this when they do draw lines on GLD's chart. http://research.perthmint.com.au/2015/07/16/you-cant-draw-horizontal-lines-on-a-gld-chart/

A New Paradigm for Control

Some quotes from https://www.quantamagazine.org/20150714-explosive-percolation-networks/ - just replace "D'Souza" or "one" or "we" with "Government" and you might see why I find this article disturbing (my emphasis).




D’Souza wants to learn how to better control complex networks. Connectivity is a double-edged sword, according to her. “For normal operating systems [like the Internet, airline networks or the stock exchange], we want them to be heavily connected,” she said. “But when we think about epidemics spreading, we want to curtail the extent of the connectivity.” Even when high connectivity is desirable, it can sometimes backfire, causing a potentially catastrophic collapse of the system. “We’d like to be able to intervene in the system easily to enhance or delay its connectivity,” depending on the situation, she said.



Explosive percolation is a first step in thinking about control, according to D’Souza, because it provides a means of manipulating the onset of long-range connectivity via small-scale interactions. A series of small-scale interventions can have dramatic consequences — for good or ill.




Public relations professionals often ask how D’Souza’s work might help their products go viral. She typically responds by pointing out that her models actually suppress viral behavior, at least in the short term. “Do you want to eke out all the gains as quickly as you can, or do you want to suppress [growth] so when it does happen, more people learn about it right away?” she said.




In other systems, such as financial markets or electrical power grids, when a collapse occurs, it is likely to be catastrophic, and this patchwork approach could be used to reverse the process, breaking up the über-connected system into a collection of disjointed clusters, or “islands,” to avoid catastrophic cascading failures. Ideally, one would hope to find a “sweet spot” for the optimal level of intervention.




The next step is to identify signs that may indicate when a system is about to go critical. Researchers understand phase transitions like the ones that happen when water turns to ice, and can identify signs of an impending change. The same cannot be said for explosive percolation. “Once we have a better understanding, we’ll be able to see how our control interventions are impacting the system,” D’Souza said. “We will have this data we can analyze in real time to see if we are seeing the signature of the early warning signals from many different classes of transitions.”

Perth Mint sales surge on back of US Mint shortage

Well it hit us a lot quicker than I thought, with a big increase in demand for our products out of the US and Europe for both gold and silver http://research.perthmint.com.au/2015/07/15/perth-mint-sales-surge-on-back-of-us-mint-shortage/

China to control the gold price, but with physical or paper?

Pierre Lassonde may well be right when he said that “10 years down the road, the Shanghai Gold Exchange (SGE) is likely to determine the gold price, not the COMEX” but will it be a case of “Meet the new boss, Same as the old boss”? http://research.perthmint.com.au/2015/07/14/china-to-control-the-gold-price-but-with-physical-or-paper/

The Texas bullion depository is not a joke

Some thoughts on Texas' bullion depository http://research.perthmint.com.au/2015/07/13/the-texas-bullion-depository-is-not-a-joke/ Have to say I was surprised at the way the media made fun of it, show their hate of gold.

Silver shortages, again

Some thoughts/observations on the US Mint suspending silver eagle sales http://research.perthmint.com.au/2015/07/10/silver-coin-shortages-again/

Is confidence more precious than gold: impact of China stock market crash on gold

Have a post up on the impact of the China stock market crash on gold demand and wondering if it is fair to ask: goodbye Chinese stock bubble, hello Chinese gold bubble?

http://research.perthmint.com.au/2015/07/09/is-confidence-more-precious-than-gold-impact-of-china-crisis-on-gold/

Gold’s strength in face of market sell off, is the bottom in?

“Gold is strong,” I hear you ask, “are you crazy?” Yes, gold fell just below $1150, but in relative terms  think it performed OK over the past 24 hours.

http://research.perthmint.com.au/2015/07/08/golds-strength-in-face-of-market-sell-off-is-the-bottom-in/

Conspiracy, complacency and the death spiral phase

Some thoughts on gold's failure to respond to Greece - is the answer only central bank manipulation? I think you can't ignore the complacency of professional money managers http://research.perthmint.com.au/2015/07/07/conspiracy-complacency-and-the-death-spiral-phase/

Historic Comex stocks, open interest and delivery figures

Another post on Comex - Historic Comex stocks, open interest and delivery figures

Mea culpa on OCC derivatives & Citibank silver mystery

I made a mistake on my last post, but in delving deeper it seems Citibank has been engaging in some unusual activity in silver http://research.perthmint.com.au/2015/07/02/mea-culpa-on-occ-derivatives/