{"id":37242,"date":"2013-04-02T02:07:23","date_gmt":"2013-04-02T06:07:23","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=37242"},"modified":"2013-04-02T02:07:23","modified_gmt":"2013-04-02T06:07:23","slug":"gold-only-rises-during-the-bad-times-and-other-fairy-tales","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/04\/02\/gold-only-rises-during-the-bad-times-and-other-fairy-tales\/","title":{"rendered":"\u2018Gold Only Rises During the Bad Times\u2019 and other Fairy Tales"},"content":{"rendered":"

By MoneyMorning.com.au<\/u><\/a> <\/p>\n

When journalists start bagging out gold<\/strong>, you know it\u2019s time to think about buying some.<\/p>\n

Because they have an uncanny knack of getting gold\u2019s next move 100% wrong.<\/p>\n

When they are cheering gold on, you can bet your nugget that the price is topping out. And conversely when they are giving gold a tough time \u2014 like now \u2014 you can be sure the gold price<\/strong> is bottoming out. <\/p>\n

Because let\u2019s face it: if they could make accurate trading calls on gold<\/a>, they wouldn\u2019t be making their living writing newspapers…<\/p>\n

So I was pleased as punch over the Easter weekend to see the Sunday Age<\/em> lead its finance section with a story called, \u2018Has gold had its time in the sun?\u2019<\/a><\/em><\/p>\n

Bring it on. More of that bearishness please! <\/p>\n

The writer did, in fairness, include some quality research from our own Greg Canavan of Sound Money Sound Investments<\/em><\/a>.<\/p>\n

Then countering Greg\u2019s argument he used some negative views from AMP Capital Investors Chief Economist, Shane Oliver. <\/p>\n

To quote the story: \u2018[Oliver] says the risk of a global meltdown or collapse has receded and the appetite for gold is less than it was…He cannot see much upside in the gold price from here, though that could change quickly if there is another major financial crisis or inflation spikes.\u2019<\/em><\/p>\n

Now I\u2019m sure Shane\u2019s a lovely guy, but he\u2019s clearly not very good at gold. <\/p>\n

Then again, which institutional economist is? While they may be able to talk about dividend payout ratios, and franking credits until dawn; gold (and gold stocks<\/a>) make up just 1% of global assets, so doesn\u2019t tend to preoccupy their thinking at 3am on a very regular basis. <\/p>\n

The main problem here is Shane\u2019s assuming gold can only rise if the world is going to pot. <\/p>\n

Some Urban Myths About Gold <\/h2>\n<\/p>\n

This is perhaps the most popular of gold\u2019s urban myths<\/strong>. And I\u2019m happy to say that it\u2019s total nonsense. <\/p>\n

Gold actually gained far more in the five \u2018go-go\u2019 years prior to the GFC than it has gained in the five crisis-riddled years since. <\/strong><\/p>\n

For example, between the start of 2003 and end of 2007, the average global GDP rate was a chunky 4.78%<\/strong>. <\/p>\n

No \u2018global meltdown or collapse\u2019. And in this period gold gained a respectable 149%.<\/p>\n

From the start of 2008 to the end of 2012, the global economy has been an ever-evolving \u2018global meltdown\u2019. The average global GDP rate has been just 2.86%<\/strong>, mostly thanks to China. <\/p>\n

And gold gained less<\/strong> in this period \u2014 with a 95% rise. <\/p>\n

So contrary to Oliver\u2019s argument, gold can do just as well or even better during the good times than the bad. <\/p>\n

The misconception is so common, I even hear it from smart analysts saying things like this: \u2018I\u2019d love to see gold at $2000, but I\u2019d hate to live in a world that creates such a high price.\u2019 <\/em><\/p>\n

So I ask them if a five-fold rise in the gold price<\/a> since 2002 has translated into a world that\u2019s five times worse (discounting the rise over that period of reality TV, drivers who text, and of course Justin Bieber).<\/p>\n

The fact is that the state of the global economy is not a direct driver of the gold price. <\/strong><\/p>\n

Other factors, for example global money supply growth, are far more important.<\/p>\n

And here\u2019s the other two biggest of these golden fairy tales.<\/strong><\/p>\n

Firstly: that rising interest rates will stop gold from rising. <\/p>\n

The idea is that investors will sell their gold when bonds start paying more yield. For example, if the US ten year bond starts paying 3\u20134% again, then gold will lose its appeal. <\/p>\n

There may be a few gold owners that think that way, but they are in a tiny minority. But the real issue here is that history disagrees with the argument<\/strong>.<\/p>\n

From 2003 to 2008, yields on a ten year US bond were around that 4% mark. And factoring in inflation, the real yield was around the 2% mark most of this time.<\/p>\n

Did that slow the gold price down? Not exactly. It gained 149%. <\/p>\n

Yields have a Long Way to Go Before They Stand a Chance of Denting Gold<\/h2>\n<\/p>\n
\"Yields<\/div>\n

<\/p>\n

Source: Bloomberg<\/div>\n

<\/em><\/p>\n

So it has been amusing to hear people argue gold was going to fall because rates were creeping back up again. Because gold soared despite five years of real rates as high as 2%. <\/p>\n

With today\u2019s rates in negative territory, I\u2019d say gold owners are pretty safe from this particular bogey-man. <\/p>\n

The third bogey-man is the theory that mass sales from ETF\u2019s could kill the gold price<\/strong>. <\/p>\n

Back in February, the media was frothing at the bit that gold would crash because investors had liquidated 100 tonnes of gold (from a total of 2500) from ETFs during the month. <\/p>\n

But let\u2019s step back and put that in context. <\/p>\n

Last year China imported 834 tonnes<\/strong>, with 114 tonnes in December alone. <\/p>\n

India imported 860 tonnes<\/strong> in 2012, with another 100 in January. <\/p>\n

As a whole, central banks purchased 534 tonnes<\/strong> in 2012. <\/p>\n

These three buyers alone account for 2228 tonnes between them in 2012. In other words, they bought 100 tonnes every 16 days. <\/p>\n

So I wouldn\u2019t sweat it that ETF\u2019s sold 100 tonnes in February. It wouldn\u2019t even touch the sides of Asian demand. <\/p>\n

In fact, global gold ETF holders could dump their entire remaining position of 2400 tonnes, and it still wouldn\u2019t be enough to feed China, India and the central banks for thirteen months<\/strong>. <\/p>\n

The Real Driver Behind Gold <\/h2>\n<\/p>\n

Gold is an Asian story now. Western investors, and famous traders and hedge fund managers for that matter, need to wake up and smell the coffee if they still think that their trading is relevant to the big picture for gold<\/a>. <\/p>\n

I wrote to you yesterday with the transcript from my recent conversation with Eric Sprott<\/a> about gold. I asked what he thought about the People\u2019s Bank of China suggesting that they hadn\u2019t increased their holding over the last three years, from 1,054 tons. Eric said: <\/p>\n\n\n

\n\u2018I don\u2019t believe that for a second. It seems so obvious to me. They haven\u2019t been buying US treasury bills or treasury bonds for the last 18 months. I think it doesn\u2019t take a rocket scientist to realise that owning gold is probably the best thing you can do these days as a central bank.\u2019<\/p>\n

<\/em><\/td>\n<\/tr>\n<\/table>\n

It was a good chat we had. And if you haven\u2019t seen it yet, I\u2019d recommend a quick read, as Eric made some very interesting observations. <\/p>\n

That\u2019s the thing. Just as you should be selective about the food you consume, you should be careful about the ideas you consume. <\/p>\n

It\u2019s your choice. Will those ideas come from a fund manager that runs $11 billion in the precious metals space \u2014 or will you prefer to gobble up a journalist\u2019s musings instead? <\/p>\n

Dr Alex Cowie<\/a>
\nEditor, Diggers & Drillers<\/em><\/strong>
\nJoin me on Google+<\/u><\/strong><\/a><\/p>\n<\/p>\n

From the Port Phillip Publishing<\/em> Library<\/strong><\/p>\n

Special Report: Australia’s Energy Stock BLOWOUT<\/a><\/p>\n

Daily Reckoning:<\/em> Why a PlayStation and Mining Technology Have More In Common Than You Think<\/a><\/p>\n

Money Morning:<\/em> On Gold \u2014 Billionaire Investor Eric Sprott Says : \u2018I\u2019m in Alex Cowie\u2019s Camp\u2019<\/a><\/p>\n

Pursuit of Happiness:<\/em> Three Scams and One Opportunity to Escape Your Mortgage<\/a><\/p>\n

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\n<\/img><\/a> <\/img><\/a> <\/img><\/a>\n<\/div>\n

<\/p>\n","protected":false},"excerpt":{"rendered":"

By MoneyMorning.com.au When journalists start bagging out gold, you know it\u2019s time to think about buying some. Because they have an uncanny knack of getting gold\u2019s next move 100% wrong. When they are cheering gold on, you can bet your nugget that the price is topping out. And conversely when they are giving gold a … <\/p>\n

Continue reading “\u2018Gold Only Rises During the Bad Times\u2019 and other Fairy Tales”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-37242","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/37242","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/comments?post=37242"}],"version-history":[{"count":0,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/posts\/37242\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/media?parent=37242"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/categories?post=37242"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmacro.com\/forex-news\/wp-json\/wp\/v2\/tags?post=37242"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}