Gold and the Full Moon
It appears that there is a full court press for the trend followers to jump on the anti-gold bandwagon. Market Watch (I actually go there daily for their variety of articles) has gone overboard trying to explain why gold is really going to $350 an ounce.
Market Watch had a piece on July 29 titled “Here’s what the rout in gold prices means for the market.” The article made it clear that there was no reason to own gold, all is well in the world. It followed closely the piece by Myra Saefong on July 27 called, “The carnage isn’t over in gold, other metals-mining stocks.” There the author made it clear that “the sector isn’t quite ready for a spike yet.”
Those pieces gathered enough readers for Market Watch to post yet another rousing gold story on July 29 named, “Opinion: Two reasons why gold may plunge to $350 an ounce.” Here the author explained how the fair value of gold is only $875 and since all markets overshoot bullion could trade as low as $350 an ounce in a couple of years.
Bloomberg couldn’t resist jumping on the trend at the very last possible moment with their piece “Gold Is Only Going to Get Worse.” They went to the trouble of asking 16 analysts and traders where they thought the price was going and the average was $984 for January. That brought to mind a process the Marine Corps used to teach for determining the distance to a point where an attack was coming from.
As was taught to me 50 years ago in Marine Corps boot camp, if you have a group of marines and want to determine the exact distance to a target, you should ask each marine independently what he thinks the distance is. Once each person has answered, you average the answers and tell the group. Then you ask them again if they would change their answer based on the new knowledge of what the group thinks. It’s called a Delphi poll.
The interesting thing about a Delphi Poll is that for objective measurements it is near perfect. If a bunch of marines on a hill see a mortar firing on them and need to know the distance for counter-battery fire, the Delphi Poll will give very accurate data.
Where you run into problems with a Delphi Poll is with subjective measurement. As in, what will the price of gold be in 6 months? In financial markets, everyone talks their book. If you are short gold, you can come up with 20 reasons gold is going lower. So when measuring subjective issues, the accurate answer is exactly the opposite of what the mob feels.
It is for a very simple reason. If you have 100 investors in a room and you ask them where will gold be in 6 months and 100% of them say, lower, gold can only go higher. When you have no more sellers in a room, you are left with no one but buyers. It’s simple but few investors get it.
If you want to reflect on just how accurate the above articles may be, you need to ask yourself if they were touting gold in September of 2011 or trashing it. All these pieces would have made really interesting reading back then. And were pretty true. But the news media by and large prints what people want to hear. They are like politicians. Tell people what they want to hear, not what they need to know. Honest politicians wouldn’t stand a chance of getting elected.
I wrote an interesting paragraph in the start of a piece I posted for November 6 of 2014. Here it is in full.
“November 6, 2014 is the full moon and it’s common for either markets to accelerate in the direction they are moving or to do a U-turn in direction. With the washout in gold, silver and mining shares of all sorts in the last week or so, investors should be watching for a bottom and sudden move higher.”
As it turns out, that was a good call. Gold dived on the 6th to a new low for the year of $1130 before zooming higher.
I will admit there is a little voodoo with suggesting that market timing for any commodity has anything to do with phases of the moon. I didn’t discover the relationship; actually Tom McClellan of McClellan Financial Publications came up with the concept. It’s not a 100% perfect correlation. Sometimes it works, sometimes it doesn’t but often trends accelerate or do a U-turn at a full moon.
As I write this piece, the FOMC has come out with their statement for their July meeting to discuss just when they should implement an interest rate hike. They said “blah, blah, blah” and the market pretty much ignored the statement. Gold could barely wake up for morning coffee. It seems to be looking for a direction. With the capitulation that took place in gold and shares last week and the constant barrage of negative gold commentary from the tread followers; perhaps it’s time for a change in trend.
Friday Jul 31, 2015 is a full moon.