Anthropomorphising* markets is not very sensible, John Dizard notes in his View From the US column in the FT, but he has insisted on doing it with gold.
“Gold wanted to break through $700 an ounce, tried its very best, then failed,” he notes. “Gold is telling a very different tale than the equity markets, but the equity markets have hundreds of billions of private equity dollars (in the US), and a huge, though less quantifiable, pot of domestic savings (in China) to propel them beyond sensible levels.
“Gold is telling us there is more asset price deflation ahead in the US, principally through a housing market that will be weaker for longer, and a commodities price peak later this year.
“A big trend break in gold tends to precede one in other commodities prices by at least six months. For the moment, commodity fund managers I know are still finding large pools of institutional money washing towards them.
“Apart from trend-is-your-friend thinking, supported by five-year charts, this seems highly dependent on the assumption that the Chinese authorities will utterly fail to rein in real growth, and on the Federal Reserve’s assumption, based on its creaky standard econometric model, that US growth will resume in the second half of the year. Gold thinks otherwise.
“Gold takes Ben Bernanke, the Fed chairman, other central bankers, and their staffs, seriously. The central banks believe that their guide, the Dynamic Stochastic General Equilibrium model, is giving them the right signals.
“They would disdain the simplistic trend-is-your-friend thinking of half-educated traders, but there is a lot in common between believing in trend charts and believing in the DGSE model. Both serve you well most of the time, but are not particularly good at calling turns in markets or economies.
“The problem that traders have with depending on the trend to be their friend is that by the time you can see that your friend has abandoned you, you’ve burned through your original and variation margin….
“Within a year, though, the gold bear market will have run its course, and Mr Bernanke’s other academic speciality, depression avoidance, will be called on. He and his counterparts in Europe, Japan and China will be called on to keep the global Ponzi scheme going, because the real economies cannot stand a bust in the financial economies. In anticipation of that rapid reversal, gold will take off as it hasn’t for a generation.
“So sell gold now, but wait for it to begin a dramatic rally next year.”
*Yes, we had to look it up too: To ascribe human form or attributes to an animal, plant, material object etc.
