Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Wanted! Bearish Gold Bulls

Commodities / Gold and Silver 2012 Mar 16, 2012 - 01:17 PM GMT

By: Adrian_Ash

Commodities

Best Financial Markets Analysis ArticleGold's bull run is exhausted, apparently. Yet it's due only a shower, not a bath...

SO GOLD BULLS are turning bearish. But not really.

"A number of things which would have kept people with an eye on the upside for gold prices have now been neutralized," says RBS's Nick Moore, who cut the state-owned UK bank's 2012 targets for precious metals other than gold in January.


Like the rest of Bloomberg's regular gold-forecaster respondents, Moore says "Everything's beginning to look as if it's turning the corner...We've passed the point of maximum despair."

And without despair, gold must be set to fall hard, no? No indeed. "Gold can now settle back," reckons Moore, plumping its pillows for an afternoon snooze.

"The one danger" for gold prices, says British MEP Nigel Farage – who used to trade base metals, and so is less clueless than your average politico – "is that the bullish consensus on gold is now higher than it's been at any time for the last two or three decades." But while that consensus means "the short-term speculative market [might find] itself a bit long of gold," Farage tells King World News, the worst that might happen to gold is "that it could have a dip." Do fetch a towel, would you?

At Mineweb, the same story: "Is gold now the contrarian play?" asks Geoff Candy, answering his own question just by raising it, and finding only "fairly optimistic" calls from even those analysts warning that gold could lose its mojo short term. Doom-n-gloom heavy Dylan Grice at Societe Generale agrees, writing this week how "Gold just isn't the misunderstood, widely shunned asset it was a few years ago," but again finding only good cause to stay long from here, rather than taking the contrary path. And "10 years ago gold was not owned by retail investors but was primarily held by central banks," nods the UK's Armstrong Investment.

"Strong performance, uncorrelated returns with other asset classes and the advent of easily-accessible ETFs have seen investors make ever-increasing allocations to the precious metal." Yet once more, "An allocation to gold [still] makes sense in a diversified portfolio."

So far, so what. But hold on – "Investors should not view [gold] as a safe haven without its own inherent risks," Armstrong go on – about as bearish a view as you'll find amongst long-term gold bulls today. Anyone wanting a real sell-off in gold, most especially those who then expect it – revived and refreshed – to resume the bull market, might have to settle for this.

"Over the long term," says Armstrong, "gold has been a perfect portfolio diversifier – positive returns with no correlation to traditional asset classes. [But] over the past three years gold prices have shown a correlation of +0.8 with the S&P500."

What does that mean? If gold and US equities were joined at the hip, they'd show a positive correlation of 1.00. And if they moved in opposite directions – but by precisely the same proportion each time – they'd show a perfectly negative correlation of 1.00 instead. Whereas over the long-term, the average correlation between gold prices and stocks actually comes out at zero. Making gold, as Armstrong notes of the past, the perfect foil for investors wanting to improve the risk-return profile of their position in stocks.

So today's current 3-year figure, therefore, up near gold's strongest-ever link with the stock market, does suggest gold has dropped nearly all of its diversification powers. But only if you neglect how that magic comes about in the first place. Not by sitting bang on zero forever, but by swinging now higher, now lower, and averaging out at "non-correlated" by in fact being positive or negative at any one time.

Overall, since gold prices began to move freely amid the last pretence of a Gold Standard in the late 1960s, the metal has moved in the same direction as stocks – on a quarterly basis – for roundabout half of the time. It's gone in the other directon to stocks for pretty much the other half of the time, making gold uncorrelated in total.

Neither positive nor negative, gold in the long run is just unconnected. Which suggests that, whatever next comes for the stock market, trying to time a gold sale (or purchase) based on today's correlation is unlikely to pay.

Chalk another fake bear up as only bullish long term.

By Adrian Ash
BullionVault.com

Gold price chart, no delay   |   Buy gold online at live prices

Formerly City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2012

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in