Earlier this year Societe Generale mapped asset classes in a matrix
according to popularity and profitability over the past few years. It got me
thinking about applying the same idea to gold to show how its sentiment had
changed over the past 10 years.
Working out the profitability dimension is easy – we can use the
percentage change in the gold price. Popularity is a bit harder as there
aren’t any investor sentiment surveys. To approximate sentiment, I have used
changes in ounces held by the major gold ETFs, funds and other services like
Perth Mint Depository. The result is the chart below.
Gold Price vs Sentiment Map
For each month over the past 10 years the map plots a point for the
percentage return on gold (over the prior 6 months) and the percentage
change in ounces held (over the prior 6 months). The monthly plot points are
then joined into a line for each year. I placed an arrow on December of each
year to give an indication of the direction of movement over time.
For this sort of scatter type chart we would expect to see a direct
relationship between price and popularity – as the price goes up, more
investors would buy gold. In general we do see that most of the points are
scattered diagonally from the Loss/Loathed (“Sad”) quadrant to the
Profit/Liked (“Happy”) quadrant.
Particularly interesting is 2008 where the line strays into the “Crazy”
quadrant where people like an investment that is losing money. As the gold
price declined during 2008, the purple line moves towards the left
(Loss) but instead of going down to Loathed, investor flows into gold
actually increased. The explanation for this behaviour is that investors were
fearful and looking to protect wealth. This subsequently turned out to be far
from crazy as the gold price increased significantly from 2009 to 2011.
The 2010-2012 period (light blue and green lines) are also interesting in
that while gold was still showing positive returns, interest/growth in ounce
held never got above the 10% level. This weakening in the sentiment then led
into Loathing, where we have been mired since.
So far the 2015 red line looks encouraging, with any luck gold will move
out of the Sad quadrant and into the Happy corner (it is not coincidental
that I put The Perth Mint’s swan logo in the top right corner, that is
certainly a happy point for us as well as our customers).
Note on calculations (for nerds).
Using month on month percentage changes produced a lot of noise in the
plots – I found a rolling 6 month change was ideal for showing the general
direction of the trend.
For the gold price I used a rolling 5 month period average on USD gold
prices as recorded by The Perth Mint, to smooth out the data and produce less
noise in the plot.
For sentiment I used a rolling 5 month period average of the following
ETFs/Funds/Services, as these were the only ones in existence 10 years ago
(didn’t want to skew the ounce data with new funds starting up mid 10 year
period, as they usually have an initial surge) and they also had to allow
outflows and inflows (hence closed-end funds like Central Fund of Canada was
excluded), in order of size: GLD, IAU, ETF Securities (LSE & ASX), Perth
Mint Depository, Bullion Vault, Permanent Portfolio Fund, ABSA NewGold, Gold
Money, Bullion Management Group, Goldist. Thanks to Nick at www.sharelynx.com for the ounce
data.
