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Gold'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
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
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