I am always a little surprised when trend traders like Armstrong try to insert fundamentals into the why things move in a certain direction in these so called markets. Ed Seykota, the father of trend trading, calls them funnymentals and at times surpriseamentals.
Take the latest from the great prognosticator, “ETF inventories in gold continue to drift lower with more than 110 tons of gold having been liquidated since late August.” Well, gosh that seems like quite a bit of gold liquidated by “retail.” However, besides the point that retail cannot buy physical through the ETF’s the number 110 tons requires a bit of perspective. In the 43rd and 44th week of this year Chinese retail demand for gold was 107 tons. Two and a half months of funds liquidating ETFs was enough gold to satiate Chinese retail for two weeks. That’s not very good analysis on the part of Mr. Armstrong is it?
You cannot explain the gold market price movements without understanding the concentration aspect of the market. The central banks are the gold market because they have the highest concentration of the metal and they move the price based on where the dollar is at any given time relative to the other major currencies. They aren’t the least bit concerned about actual demand. What does concern them is their inability to manage that price if new rules are thrust upon them. Let me show you why?
The table above is somewhat self-explanatory. It shows physical sales of Europe’s CBs to….well we have no idea now do we? I surmise that these sales are to other CBs and they are a function of the dollar. Notice how the sales are very consistent and then plunge. Once the dollar was done going down the sales simply stopped. If the CBs were truly concerned about supplying the gold retail trade then sales should have remained elevated. After all Chinese demand has doubled since the CBs stopped supplying the market via the Washington Agreement.
This is why the Swiss vote at the end of this month is interesting to say the least. CBs only care about their own balance sheets and they do not like being told what they can and cannot do with the aforementioned. Good grief we cannot even have our own CB audited! If the Swiss people are able to force an actual accounting of Swiss gold and prohibit the bank from “playing” with it, we may actually end up moving closer toward a market with actual price discovery.
Finally, a note on the gold miners and the ceaseless attacks on their share price. All anyone ever talked about in the media was soaring costs, etc. and that was the reason for the miners plunging to 2003, 2008 levels. They weren’t making enough money. Meanwhile tech and anything else not having to do with gold soared because, “Hey things are awesome!”
If you missed it have a look at SocGen’s piece over at ZH.
Profits are up a huge 3%! since gold topped, while stocks as a whole are up 38%!!!! In other words almost EVERYTHING went up but the gold stocks. Just how insane is the equity “market.”
Since the October lows, which was hardly a “low,” Microsoft that bastion of innovation has added a stunning $60B in market cap. Yes, in one month a tired old tech company that has done exactly zero on the innovation side other than firing a lot of people has added an incredible $60B in market cap. The six largest gold miners I could find based in the Western world combined do not equal $60B in market cap.
That is the world we live in.
Written by a Mystery