Looking all sense over gold


No double about which chart looks the most interesting this week and that’s gold. Leaving aside the reasons for this latest push lower, it has brought to an end the more recent period of consolidation for the gold price that had given some hope for the bulls that the worst was over.

More rubbish is written about gold than nearly any other commodity. This is because it strays into the realm of portfolio allocation, is non-yielding and is of limited industrial or commercial use, so there is very little basis for valuing it. This gives free reign to various talking heads to say pretty much whatever they want, which usually involves it going up. I remember being on CNBC once when one of them was advocating putting pretty much everything into gold. I also attended a presentation in April 2013 given by technical analyst at a huge bank. His biggest call was long gold and he went on to say that more than 90% of his UK pension (having worked here for 8 years) was in gold. It’s like gold is an excuse to take leave of all the basics of investment and portfolio allocation, as well as losing 20% on gold, this guy has also lost out on the c. 30% rally in European equities and 15% (total return index) in European sovereign bonds. 

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I wrote a lot about gold a couple of years ago, when we were in one of these periods of losing all rationalisation (see Good times over for Gold). I still think we are in a bear market, largely because a rising US currency and rising real interest rates is a backdrop against which gold will struggle, even after the losses of recent years. These simple facts will continue to dominate any other irrational arguments.

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