Stock Market News: Gold Bull

In bull markets (remember those) share prices move gradually in a constant reflection of earnings and value and investors enjoy a rather predictable progression in share prices. Investing is based around research and it’s all pretty straightforward. The current market is nothing like that. The current market is not being priced on value or earnings, it is being priced on “Risk” and when its priced on risk individual 'events' can move the market very quickly and the menacing possibility of the market gapping 10% in but a moment without reference to earnings or value is why a lot of previously happy investors are now nestling in term deposits, bonds, notes, fixed interest and its hybrids. They don’t want volatility, stress and constant worry. They just want a return on their money. And why not? But the drive to safety has its own consequences. A corporate note bubble for instance. One fixed interest specialist firm reckons retail investors are getting 2.5-4.5% less yield on some of these corporate notes than wholesale investors get for higher ranking (safer) subordinated debt from the very same corporates. And a Gold B.U.B.B.L.E.  Of course you’re not allowed to actually say “Gold Bubble” or you get bombarded by emails from emotional gold companies and investors telling you it’s “a store of value” and the ultimate “safe haven” and that when all those fiat currencies disappear in smoke “You’ll be sorry”. Well sorry but “Yawn”. All those arguments were true when gold was around $250-500 an ounce for most of the last century, and whilst no doubt true they do not provide comfort for people paying $1500-1600 now. All of the gold in the worldLets face it, all the Gold in the world ever dug up forms a 20.4m x 20.4m x 20.4m cube. It grows at 2% pa, consumption is minimal and physical supply and demand pretty much in balance. It is sitting there not doing anything, returning nothing and the price is not a reflection of gold as a “store of value” or a “safe haven” it’s a function of a herd stampeding around and (currently) losing its head. Meanwhile the cube just sits there wondering what all the fuss is about but glistening just that little bit more whilst the attention lasts. Gold is unlike any other commodities that are priced on supply, consumption and future demand. Gold doesn’t run out, it is just sitting there doing nothing, not returning anything, whilst the herd makes up the price and the price, although you can’t get anyone to admit it, now includes a huge element of speculative froth helped along by a new vehicle of demand, not around in the last bubble, ETFs (Exchange Traded Funds) which have only really been buying physical gold since 2003 and are there not to buy gold to consume it, but to facilitate gold price speculation by storing it. Which highlights the difference and the risk of speculating in gold as opposed to other currencies. The difference is that Gold is not consumed when bought. The gold you buy, doesn’t go away. It is stored. And the risk is that it can be sold again at any time. In which case the gold price B.U.B.B.L.E relies on everyone not selling. It isn’t a function of industry or growth, it is simply a function of the herd in which case, at this price, gold is not a store of value, its a highly dangerous speculative commodity price coming out of a 10 year bubble, and you can glamourise it all you like, but for a “safe haven” it is terribly risky. Gold today is the same gold that commanded a $250-500 price (that’s inflation adjusted) for most of the last century. Everything that is being said to support it now was true back then when it was $250-500 not $1500. Back then, before the B.U.B.B.L.E it was viewed, as it will be again, as a very conservative investment in a benign metal with little purpose and no return. The rest is just a transitory period of popularity fueled by fear and emotion and decorated with a lot of marketing clichés. One day gold will go back to its long term ‘strategic’ value of $250-500 as it did after the 70’s and 80’s. The game for you is to decide how and when it will get there and as with any speculation timing is going to be everything. This B.U.B.B.L.E will end. All you need to work out is when. Whether you can buy it today and sell it to someone who is more enthusiastic than you at a higher price tomorrow. People go about investing in many different ways, but for me Gold is a trade, it was never an ‘investment’ , how can it be with no industry, no growth and no return. It is a price, nothing more and no manner of gold bull “bull” will blind me to that. At $1566 it is still three times what it was valued at for most of the last century and three times what it is one day going to be worth again. It’s all a question of how it gets there and you would be well advised to trade the journey not invest in the “Bull”. Gold price adjusted for inflation

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