Skip to main content

Gold going down -- anyway that's what the big banks are saying

There is one thing for sure when the market is certain of one thing, usually the opposite occurs.  Morgan Stanley and Goldman Sachs are both telling their clients that gold is a sure thing for $1,050 -- or a drop of about 15%.  As Mish Shedlock tells it the big bank have a long dated habit of telling their clients one thing and doing the opposite.  Mike's point is that you cannot trust the big boys their are playing there own games.

First off, the big players like MS and GS (Citi too for that matter) have a reputation for saying one thing and then doing the opposite.  IN 2008 GS were encouraging their clients to buy CDS, but the bank's prop book was very short.  Giving the prop book massive profits -- despite near bankruptcy for part of the banking system, it remains a prime cautionary tail.

Back to the gold story.

There is an issue with gold's price gyrations, which is often unconnected from any macro or micro economic drivers (very low correlation to the market activity).  In the late 00s Gold was seen as a safe haven for investors.  Yet today the same global uncertainties are rising (you've got Russian tanks in the Ukraine, and you've got some real estate news out of China (bubble popping).  Bottom line Gold is been trading in the USD1,200 -- 1,4000 range for some months now.  There is no reason for a serious downward movement.   

So why are GS and MS bearish on gold?  My guess is that its because analyst are like university professor:  publish or die.  Analysts need to say something, to stay in the news (be controversial)  to provide commentary on the market direction even when they don't have a clue.  My guess is that these guys suddenly decided that Gold was not sexy.  There are always reasons to be contrarian; emphasis one aspect ignore or undermine the reasoning behind another and voila, you've got a reason to all negative on gold!

The worse part is that there are three distinct demand drivers for gold:  Jewellery, investors and central banks.  All three have different demand curves, often central banks will be selling gold when its cheap and buying when its expensive.  Jewellery (excluding India) is driven by economic growth, and investor demand is governed by fear and opportunity.  It is virtually impossible for the ordinary investor to make an informed analysis on these three demand drivers -- and government demand in particular is the worse, since data on gold holding is only provided annually.  Last year Russia was a big buyer, we only found out in late 2013.

Anyway now you know!


Popular posts from this blog

Trucker shortage? No a plan to allow driverless rigs

There are still articles on how America is running out of truckers -- and that its a huge problem, except its not a problem, if it was a problem salaries would rise to so that demand would clear. Trucking is one of those industry where the vast majority of participants are owner/operators and therefore free agents.

Salaries and cost are extremely well know, "industry" complains that there are not enough truckers, yet wages continue to fall... Therefore there are still too many truckers around, for if there was a shortage of supply prices would rise, and they don't.

What there is though is something different; there is a push to allow automatic rigs to "operate across the US", so to encourage the various authorities to allow self driving rigs you talk shortage and hope that politicians decided that "Well if people don't want to work, lets get robots to do the work" or words to that effect.

This has nothing to do with shortage of drivers, but every…

Every punter says oil prices are on the rise: Oil hits $48/bbl -- lowest since September 2016

What the hell?

How could this be, punters, advisors, investment bankers all agreed commodity prices  in general and oil prices in particular are on the rise...its a brave new era for producers and exporters -- finally the world is back and demand is going through the roof, except not so much!

What happened?  Well energy is complicated, the world operates in a balance -- 30 days of physical reserves is about all we've got (seriously) this is a just in time business.  So the long term trend always gets hit by short term variations.

Global production over the past 12 months has risen by somewhat less than 1.5% per annum.  As the world market changes production becomes less energy intensive (maybe), but the reality is that the world is growing more slowly -- America Q4 GDP growth was around 1.9% (annualized) Europe is going nowhere fast (the GDP growth in Germany is overshadowed by the lack of growth in France, Italy, Spain (lets say 27 Euro members generated a total GDP growth of 1.2…

Paying for research

This morning I was reading that CLSA -- since 2013 proudly owned by CITIC -- was shutting down its American equity research department -- 90 people will be affected!

Now the value of a lot of research is limited, that is not to say that all research is bad. In fact, I remember that GS's Asia Aerospace research was considered the bible for the sector.  Granted, there was little you could do with the research since the "buy" was for Chinese airlines...that were state owned.  Still it was a vey valuable tool in understanding the local dynamics.  It seems that the US has introduced new legislation that forces brokers to "sell" their research services!  Figures of $10,000 an hour have been mentioned...

Now, research can be sold many times; if GS has 5000/6000 clients they may sell the same research 300x or 400x (I exaggerate) but this is the key -- Those who buy the research are, I presume, prohibited from giving it away or selling it, at the same time the same rese…