7.30 ... time for a close look at gold
22 June 2009
Sean Russo
THE fact that I feel the need to qualify offering my current “best guess” on the gold market has two key drivers.
The more rational driver is that I try to live by our company’s name and driving philosophy; Noah’s Rule, which is “predicting rain doesn’t count, building arks does”. Simply put, forecasting is a poor second to robust risk management, so predicting (and worse, thinking anyone else is interested in your prediction) is egotistical or at least self indulgent.
The second driver, which is perhaps slightly less rational, is that my view seems so much at odds with the short term consensus that I feel compelled to offer it to try and balance the argument. But at the same time I truly feel threatened by offering a view that is not insanely, wildly, devil-may-care bullish on gold. When it is clear to everyone else that the USD dollar down and gold up is a given.
I will admit I do like being contrarian so I should enjoy this view, but the current force of the other side is so strong I feel drawn to the pack. It wasn’t always the case that I was a contrarian – I turned on the tears in my late teens to ensure my mother would buy me a pair of Amco Bogarts. The thought of not looking exactly like all my peers when we ventured out to Boppa’s Disco was horrifying. Not since those days has the desire to again conform been so strong.
Why? Well in the past few weeks in among all manner of more newsworthy scandals and pandemics the ABC’s 7.30 Report dedicated close to half a show to a special on gold and in the days following The Today Show had an expert on the program talking gold, including bringing in “real” gold bars and the obligatory security guards. In both cases the most compelling reasons offered to buy gold was how well it had done over the past five years. Oh yes, and then the further support is the “fact” that everyone knows the USD must collapse.
If it had been Kerrie-Anne Kennelley selling gold coins in four easy monthly instalments alongside steam mops and ab-rollers I wouldn't have given it a second thought.
If it had been Kerri-Anne Kennerley selling gold coins in four easy monthly instalments alongside steam mops and ab-rollers I wouldn’t have given it a second thought. In fact, I would understand it. Who doesn’t want abs and clean floors. But these shows aim at serious journalism, even if only the 7.30 Report succeeds, so they must be reflecting what they see as very strong social mood to devote that much time to a subject and we tend to think it must be well researched. By the time they have turned to the weather one just can’t help but feel not being long gold is almost irresponsible in the face of the charts and chat.
After a cold shower and a good lie down I tried to remember how many times I saw gold on the news in and around 2000. Of course I couldn’t. It was all dot-com and the charts of the glamour stocks looked equally compelling. What were you doing for the past five years you schmuck if you weren’t long these companies? But don’t worry, it’s not too late. The world is about to change forever. Remember, that’s when miners were going dot-com; those were the stories of the day.
I believe these TV shows, like magazine covers, are wonderful contrarian indicators if you can just be detached enough to see that. My “best guess” is that everybody who wants to be long gold is long and lots of people who really can’t afford to be long gold and don’t understand how volatile and illiquid it can be are long as well. In the absence of the end of the world or at least the end of the USA in quite short order they will grow bored and try to quietly sell their gold. Should that happen there will be very little gold producer hedge buybacks to dampen the fall (they only ever seem to pay the high on recent form) and little or no investor demand.
That there will be more sellers than buyers is the clear risk as I see it in the medium term. In the longer term I think we may have a brief window where gold goes crazy, but these things are seldom reported ahead of time on The Today Show.
After all if they really valued gold and thought we really should own some, Karl Stefanovic and that boofy bloke would be running around giving away gold bars in “Random Acts of Kindness”. I can see it now KS: “Here you go big fella, if you think your life’s bad now just wait until the USD craps itself. Stick these gold bars, donated by the lovely people at Gold Corporation, under your bed and everything will be okay”. BF: “%^$$ off, I want a caravan like you gave the other bloke.”