Category Archives: The In & Out

Gold: In need of a polish?

Pinkers’s entry on Gold 1 January 2014 (The Post, ‘Clairvoyant Readings’):

“The precious metal appears to be in meltdown.  After an amazing bull run lasting 12 years, 2013 has seen the first negative return: Trading at around the $1,700 an ounce mark in January gold has slumped to just over $1,200, which represents a 30pc fall.  This is the biggest yearly drop since 1981.  So what does the future hold?  The sentiment is overwhelmingly negative and, for once, Pinkers does not take a contrarian view.  In fact, Pinkers believes most analysts are still too optimistic with their forecasts ranging from $1,090 to $1,200 average for 2014.  In the first half of the year, gold will probably test the major support level of $900-950.  This should represent a good entry point.  Even a drop to $750 is not inconceivable.  However, we should see consolidation in the second half, especially with Eurozone troubles reemerging and higher inflation in the US and UK.  Pinkers believes gold will end 2014 around the level where it is now: $1,200.  The shiny metal doesn’t need polishing: It is and always will be a ‘safe haven’ asset and widely held as an insurance policy.  Physical demand, especially from India and China, will remain robust at current and lower levels but it will not be enough to make up for ETF outflows.”

“… doesn’t need polishing…”. Well, Pinkers isn’t so sure, anymore. Gold has been a bit of an unruly child recently, responding in an erratic and unpredictable manner to hitherto reliable indicators such as the threat of inflation (QE!), political turmoil and currency movements. This new, rather random ‘behaviour’, appears to have coincided with the rise of Exchange Traded Funds (ETF) that have introduced more flexibility and ease of trading and hence facilitating more speculative trading. Dubbed as a ‘cheaper’ and more ‘user-friendly’ platform, the ETF appears to have eroded gold’s traditional role as a trusted hedge and insurance policy.

It is a myth to believe gold is a constant store of value. Like anything else, the price of gold is created by supply and demand.

Moreover, one can only be amazed at the current extraordinarily high value put on reserves by the gold miners! These may well be based on recent prices achieved but allow for hardly any safety cushion. Even more astonishing that accounting rules don’t require more stringent targets. Even Lex clearly errs on the side of generosity, saying Randgold follows more “conservative” practice; at a price of $1,000??? Hardly conservative. Indeed, most gold analysts seem to have a rather rose (or perhaps gold?)-tinted view of the future price of the precious metal… What about $800? Surely, a by far more realistic yardstick?

Further to this: Bold on gold! and The golden urinal!