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Gold Sentiment Is Just Plain Ugly
The headlines are dramatic, ugly and depressing to anyone who holds gold right now. Broad market sentiment has shifted from disdain and dismissive to highly negative. Hedge funds are shorting gold aggressively, hedge funds that own gold are being "outed". The market pundits are are sticking the proverbial knife in and twisting it with glee. The Financial Times published an interesting article over the weekend.
"Why gold has lost its shine for investors"
by Mohamed El-Erian. He is one of the world's most respected investors and market commentators. In his piece he makes a number of interesting observations.
According to El Erian gold is falling because:
- In a world of ETFs investors can mange risk more effectively and therefore do not need a traditional safe haven such as gold.
- Gold does well in inflationary environments, we don't have one right now, ergo, gold does poorly.
- Central banks are not buying gold as aggressively as they once did; lower demand, lower prices.
- Gold has not reacted as a safe haven as it should. Greece should have sent the price soaring but it did not.
- Official and institutional demand for gold has not materialised.
- Physical market demand at lower prices is not strong enough to create a firm bid for gold, there are not enough small guys in the market.
- Gold's recent price move up $1,000 from $700 in 2008 was the outlier and not the norm and gold is now priced more correctly than it was then.
- But then he drops the biggest bomb of all. He states that gold could buck its recent trend and the reason he gives should give you all reason to take notice.
"This situation is unlikely to change soon but it need not be terminal. A shift would probably require a broader normalisation of financial markets, including a diminution in the direct and indirect role of central banks in determining asset prices and their correlations."
Does this not strike you as a particularly insightful statement, from one of the world's foremost investment minds no less?
I read it as follows, "the game is rigged until it is not rigged and then and only then will gold normalise to its true market value (straw poll please), as will other assets."
Nearly all his previous points are rendered moot if in fact the market is rigged and we lack an effective fair price discovery mechanism.
The fact is the markets are massively dependent on central bank funding, central bank benchmark rates and central bank meeting minutes. The small matters of risk premia, allocations, efficiencies, debt levels, productivity, ROCE, even dividends are not so important any more. Just look at the rise of the Fed balance sheet and the S&P500. Literally, they are one for one.
Nope, its the unelected masters of the universe that now control the financial destiny of every human on the planet. Not one of them was ever elected. We are witness to the most extraordinary concentration of power that has ever existed, and our political representatives have allowed this to happen.
If you are foolish enough to trust in the markets' internal risk pricing mechanism, efficient market theory, think again.
For example do a search on "Alladdin". You will find that it is a centralised risk management service and asset manager monster that now controls a massive, circa $17 trillion, of the global capital market, or circa 8% of the world's stocks, bonds and loans. 17,000 traders the world over rely on its risk models directly or partially.
We may all be witness to the first chapter of the MBA class of 2025's required course "Failed Monetary Theories of the Last 100 Years". Your grand kids may even ask you what it was like.... before the great reset.
Trust me this will get a lot worse before it gets better. I would wager that the central bank officials of the Fed and the BOE, BOJ and that intellectual vacant organisation that is the ECB, wear with great unease the new found power that they have.
If you need proof look at the number of market mechanisms that have been wholesale rigged for the past 15 years. These operators never operated in absolute secret. The watchers that watched knew and their silence implied unofficial sanction. Soon the banks again will be recapitalised, this time not with nameless tax payers but with your pensions and your savings. Bail-ins are coming, google "bail-ins" and read up.
Gold may well fall further in the near term and the powers that be may well keep the bus on the road for the near future, but if history teaches us anything is that you never bet against the wisdom of the crowd. Ultimately, these markets will be freed up and when they do gold will be bid up aggressively. On the other hand, the markets can stay irrational longer then you can stay liquid, so don't put all your money into gold but do keep a small percentage (5% - 20%) and look at it as a form of financial insurance. If it is falling in value then the rest of your assets should be rising and that is the essence of investing: asset diversification.
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Diversification SOUNDS great. But what if I don't TRUST the government not to confiscate my IRA? Or my bank not to bail-in itself with my assets? And there isn't going to be any warning when it happens. Or the governmnet to move in a bunch of Section 8s to destroy the value of the neighborhood in which I live?
Fuck this.
If I can't carry it with me, it isn't really mine. I'll take my chances with Guns, Gold and Groceries, while I rent, own my little country home in Eastern Europe, keep a month's cash available for bills.
The effects of the financial crash in 2008 was for the most part frozen by "printing" enormous amount of debt and injecting into the system.
Obviously this cant go on forever and i would not be surprised if the endgame is getting close.
All those money magic games only work if no one sees trough them, and at this point this vale of ignorance and simple thought that has been protecting the magic has many holes in it.
I would expect precious metals such as gold to become a even more precious in the near future, like towards the end of the year.
Its been almost 7 years now since the crisis and the rescue operations that have been tried so far have been counterproductive and there is nothing left in the toolbox, or any ideas to respond to the next crash.
I have been reading and occasionally commenting on this stuff for almost 7 years, and i think its time to bugger off now.
Its quite possible that everything will be wonderful and we will just print our way into prosperity and by way of magic all the debts will disappear, but i would rather lean towards a more dismal end to all this.
I hope i haven't been bugging you guys to much with my ramblings trough the years.
Best of luck :)
There is aserious disconnect currently between the futures price and the real market. Look at oil, the supply/demand was poor for quite a while before the price finally tanked. I expect changes to occur once non USD commodity trades begin.
Sentiment is ugly, and price action will get even more ugly... anyone trying to pick the bottom will catch a falling knife.
However, i expect now that we get a great wash, maybe down to 900$ or even more (700-800 ?), and a bottom found for a few years at least with a very sharp ensuing bounce...at least to current levels.... typical price action from oversold markets
FORGET gold sentiment. The hedge funds went short because they think there will be a repeat of 2008.
We are fighting ISIS, Putin wants to put Russian commandos in Syria, Sooner or later China will get p*ssed off and take some islands from Japan, Saudi Arabia is kicking the sh*t out of Yemen, Greece is headed towards riots, and the Ukraine is still a mess. And Ohh Yeah - probably some terrorist organization that nobody's even heard of - will blow up a major target somewhere.
SURE the world is under control.
SURE nobody needs gold.
Hahahahahahaha!!!
deflationary death spiral for awhile until their mind-numbing qe4.
Gold eh?
Within that process. Hmmmm
Well, within that definition. It will continue to go,,,
Why?
What is the real gold?
Pens,
A BIG mistake people make is to think that the fact that gold isn't soaring in response to things that normally make it do that is some proof that gold doesn't "work" anymore...
Wrong, so wrong. The reason gold hasn't soared is because its price is right. It's our values that are out of wack, and getting wackier...Gold is trying to tell you that your stuff isn't worth what you THINK it is, which is why it isn't going up like everything else.
Sure price is manipulated, but these tricks don't work well with gold as they do with other things, so it hasn't been that hard for TPTB to keep it where it is because that's really where it wants to be anyway, as it is reflecting real values, not the ones we WANT to have. What TPTB are actually doing is less price-suppression than rise-prevention. By keeping gold from rising to where it should be in this inflated economy, which would ALSO be a grossly inflated value, they keep you from seeing your so-called 'values' in their proper scale.
But since gold is real-world money, not imaginary fiat, it responds to REAL economic situations better than it does to phony manipulations. It RESISTS phony inflation, which is why they hate it so much. They can't control it once it sets about discovering its true price. They'd be thrilled if they could control the ascent and let it climb a little here, a little there. That would be a big key to controlled constant inflation, the state they want to achieve. But once they let go, it would rip so high so fast they'd shit their pants, and they know it. It is staying down because it is telling us we are NOT nearly as 'wealthy' as we have convinced ourselves we are. Of course, if we refuse to allow the re-pricing of assets by resisting the declines eventually gold WILL 'throw its hands up' and say, "Ok, I give up. Let me show you what my price looks like in an economy 10 times bigger than it should be..."
Gold wants to reflect the TRUE economy. Either we deflate, and accept golds verdict, or gold will finally go up to reflect the ridiculousness of our valuations.
Your theory of gold being priced where it 'should be' is belied by the increase in paper claims against the physical stock. And by the underlying demand for the physical. But the physical can't move the paper price when it represents only 1 / 120th of the volume.
Go back and study some more...
Ha ha...the problem with ALL the economic theories is that they NEVER took into account our current, GLOBAL clusterfuck.
NONE of the theories 'work' anymore. Because all the controlling entities are doing things the theorists would NEVER have imagined, on a scale never thought possible...And at greater scales, often the 'physics' of things behave differently than we are used to.
We are in trouble because people keep looking to obsolete theories to try to predict a likely future. Then something flies in out of left field. We are in uncharted territory. I'll brainstorm new and different ideas, try and see things differently from the established theories. Gold and paper have NEVER had this type of relationship before, and we've never had such a purely fiat GLOBAL economy, so you can't say this or that can't happen to the price of either. We simply can't count on ANYTHING behaving as it should.
My thinking on gold is based on it's behavior patterns in the past, not on specific things it has done under various regimes. I'm trying to see how the fact that gold has always seen its value stay within range of an appropriate value for a particular economy might play out in this one. And knowing how artificially inflated assets ARE, it occurs to me that perhaps gold is trying to tell us this by remaining stubbornly low...maybe it ISN'T the Fed's manipulations doing it, maybe it just LOOKS that way. And maybe we are so willing to believe that because we harbor hope that the stuff WE have really is worth what we paid.
If gold is saying it ISN'T, we are ALL going to have to swallow a LOT of losses.
Dumping paper gold, who want's to hold something that you'll never be able to cash in for physical metal. Pretty sure we are approaching the final sale price on PM's.
yes i agree. around 700$ it should find real demand and bounce very quickly back to 800$
Who cares......it's just paper. Doesn't rock beat paper?
LOL
unfortunately, Paper always win against rock. Gold Bugs need some scissors to help
Here's and interesting article from Hugo Salinas Price. Will China revalue the Yuan against gold?
http://www.plata.com.mx/mplata/articulos/articlesFilt.asp?fiidarticulo=266
I like Mark O and have followed his advice by diversifying, half my assests are gold the other half is silver.
See easy
Only gold is money.
Yes, You are absolutely right!
If you sincerely believe that money and currencies represent the very same phenomenon, think over this phrase: «Digital water». Or this one: «Paper water». Try to imagine digital or paper water. What do you think, can water be digital or paper? No, it can`t. Only guarantees and promises of water can be digital or paper, not water itself.
You can substitute the word «water» with any other one. It will help you imagine eating paper or digital chocolate. Or drinking paper or digital beer. Or using paper or digital oil for gasoline production. Or connecting your house to a paper or digital electricity supply network.
Is Gresham's law a silly mistake or an example of deliberate juggling with facts and concepts? Part II – The Rouble lawPaper gold is sort of like carbon credits I think. Imaginary bs that moves lots of fiat from one pocket to another.
Old Rothschild technique. Knock it down publically- paper shorts; buy it privately- physical metals in hand.
Sounds like gold is on sale!
Aussie Gold miners are on sale. Cash rich, no debt, AISC $1100Aussie, Gold $1500 Aussie.
Deflation is tough on gold. Greece is the poster child of why gold has tanked. Greece is the face of the new global deflation. In a barter economy, gold is worth 35/oz. Sorry.
Without all the froth we've generated over the past few decades gold IS priced much lower than most gold bugs would like...Not sure about 35 oz, but definitely lower. That's the TRUE value as reflected in REAL assets.
WITH the froth (leaving prices where they are so no one has to take their losses) gold would seek a level in the many, many thousands. Markets would panic. So they have to prevent that.
They don't drive the price down so much as they step in to halt its rise as needed. Because lower prices ARE the natural gold price, it hasn't been as hard as you'd think.
But if asset prices in ALL classes don't come down to a proper ratio to gold, gold will eventually rise to restore it from the back end...
Of course that doesn't matter, because that impressive gain will be in the very fiat that is about to implode. Thereby showing you how fake all your wealth really was. (Isn't gold smart?) A lot of weak hands will sell into such a rally, only to see the fiat they cashed in for crash spectacularly. To go to zero.
35 oz won't seem quite so bad then.
The weak hands will not sell into a rally of an obviously-crashing fiat (when that happens). Weak hands will be smoked out by the gyrations and monkey-hammering going on since the CBs panicked at $1,900.
Not sure why gold is always getting tied to a barter economy.......Greece already has a developing barter economy and they aren't trading in just gold (a typical corner store clerk or farmer doesn't have the slightest clue what an ounce of gold or silver is worth). Gold is an asset class just like any other and that's why it's getting hammered by deflation right now. It's all money flows, not conspiracy. Gold will have its day again but not until its loathed by all who bought at higher prices and left for dead by all who didn't.
So I assume you think it's not manipulated?
I know I shouldn't rise to such idiotic bait, but gold was worth more than $35 in 1944. Half the reason we went off the gold standard is because the price was too low from the beginning. As the US printed gobs of money in support of the reserve status, and international trade, the price of gold should have risen along with the money supply. Since no government can resist the temptation to print money, a gold standard with a peg is really just a gold price supression scheme.
El Erain is a self-promoting poser. If you really listen to him he never says anything: This will happen but its possible the opposite will happen, or maybe neither or maybe both. Wow. The guy went into Pimco, and the place fell apart. I don't know the inside story, but I was never impressed.
Visit Greece then. There is a countless number of black markets with gold (and cigarettes, which are now used as a currency as well btw). And gold sold in black markets is more expensive than the gold sold in normal shops in other Western countries. Last time I visited, it was $1,700 Per Ounce (the normal price of gold was about $1,180 Per Ounce at that time). I don't know what it is now after this sad story with Syriza, but I bet that it is even more.
This is exatly my point.........currency in an above board barter economy is whatever you can use (avg person doesn't know the price of gold or silver, but black markets sure do) which is why you are seeing gold appear in the black markets and illegal stuff is always more expensive (ie premium attached) because people want to be compensated for taking the risk.
Anyone in Greece who got into gold before capital controls is breathing a sigh of relief right now. Please enlighten us with your incredible knowledge of how you know exactly how much gold is worth in a barter economy.
I don't think he mentioned exactly how much gold is worth in a barter economy. He only said 35 per ounce. 35 what? Barrels of oil? Ounces of silver? Captured slave girls being sold by ISIS? Surely not FRNs...
35 acres per oz would be nice
Oh we the Few the Proud the Sane...
Rendered moot. Not mute. C'mon man.
No kidding. And then there's this gem:
" look at it as a firm of financial insurance. "
No, it's FORM of financial insurance. Either the guy wrote this after too many beers - or not enough coffee.
... and this one. One of the best examples of skipping too much 5th grade English class. A sentence where the words "than" and "then" should both appear, and the author still doesn't see the difference.
"Gold's recent price move up $1,000 from $700 in 2008 was the outlier and not the norm and gold is now priced more correctly then it was then."
I admit, I'm darned near a 'proper grammar nazi' because seeing basic English mistakes like these drive me nuts. Nonetheless, this is still a good article with valuable observations. We don't want to discourage this author from continuing his good work. On the other hand, El Arian's points are out to lunch.
Fixed now! Thank you for your kind words.
No worries. I'm a big fan. I'm also a bit of a prick about the misusage of the word "then". I have a ton of fun with it on Twitter but I never mean any harm because, let's be honest, there are a lot of other things in the world more worth worrying about.
All editors were executed in the first round of the new re-education. Writers and people with glasses and fillings in their teeth are next.
He ignores the GLD distortion and leverage 100:1 in GLD.
Devil's advocate?
GLD is not levered. It may not have all the physical it says it does but its probalby like SLV, missing 10-20%.
Both this guy AND the original FT reporter (not surprising) do not mention the 100+ to 1leveraging of GLD. It seems so bizarre to me. ZH has pounded the drum on this, and they let a piece roll here without mentioning it? Seems like a missed opportunity to let the FT play punching bag.
he also doenst mention illiquid hour slamdowns. If that isnt discussed i cease listening entirely. All these 'technical analysis' wankers effectively perpetuate the illusions by ignoring blatant manipulation
124:1 according to a recent article
That was gold futures contracts, not the GLD ETF.
The ratio of 124:1 indicates that the gamblers have doubled down their wagers 7 times over. It wouldn't be surprising for them to double down several times more before this is over, so ratios of 1000:1 or greater may occur.
The outcome should be predicted by martingale theory, but the math is very complicated. My simple view is that as the ratios increase, the system becomes more and more susceptible to small deviations in stability, and eventually crashes back to its original state. But the exact time is not predictable.
Paper money is dirty nasty stuff, studies have shown it to carry everything from listeria to the common cold to cocain residue to collera. Siver has strong antilbiotic qualities, it will cure any infection. Every single FIAT money system from the begining of time has gone to ZERO. Fuck central banks and thier government puppets they are on borrowed time.
You forgot skanky dancer crotch sweat.
Finally, a good article on Gold with a well founded source. The Central Banks of the world are deploying their RAID! against Gold Bugz of the world. Buy more gold now at your own peril.