This article highlights certain risks inherent to buying gold, risks besides the taper-talk you keep hearing about (I also explain why I do not believe that tapering itself is such a terrible concern in a previous article), the first being the announcements of investment banks, the second being the mass media and the third being holdings in SPDR Gold Trust GLD. I hope that awareness of these risks will allow encourage more rational trading in this precious metal.
Quoth the Raven wrote an article back in April 26th back when Goldman had first issued its gold downgrades in which he had noted that Goldman had a significant short position before even issuing their statement and covered said position in two weeks, before issuing another statement. There is a difference between predictive ability and market manipulation, and that difference lies in the effect that a single statement has on the market, as well as the size of a singular participant. Both of these factors are in Goldman's favor. Goldman saw gold heading towards 1050 by next year, yet now sees gold above 1400 for this year (Oh no, the sky is falling, but wait until next year, it's really going to fall then)
Here is an astounding study of contrasts: Tapering had been blamed when gold futures went below 1300 on the 6th of August (interestingly they did not mention that gold had also been in backwardation, a sign that gold had been oversold and delivery of future contacts were uncertain)Tapering was forecast as a reason for gold to head down by UBS; as it fell in the 19th-20th of august everyone appeared to have been blaming tapering as well (this was about a day after my article, which had predicted a gold moonshot, had been published. It had reached a low of about 1351-1355; interestingly this was rather close to the 1350 UBS had predicted. By the way, within the same day it had returned to the 1360-1370 range).
In the mass media, uncertainty over tapering is blamed for gold going up, at the same time that probable tapering, an 'improving' economy and lower jobless claims were cited by Bloomberg as reasons for gold going up.... Or did they really mean down? Firstly, this is the complete opposite of what Bloomberg normally claims, but the wording of their article seemed to be estranged from reality and surprisingly noncommittal, which immediately aroused my suspicions.
Secondly, and just for laughs, check out the difference between the URL and the title of the article I had just linked to, as seen in the picture below.
Clearly they had expected gold to crash, perhaps someone had told them that would be the case, and when it was not they were too lazy to change the wording of the article much, or even modify the URL. Seriously, although the gold spot might be unpredictable, I doubt the jobs data would suddenly reverse course in order to justify their new assertion that tapering was unlikely, which itself had been reversed in order to justify the higher gold spot. It's like their putting the rider before the cart, and then the cart before the horse.
Basically, the 'experts' would have us believe that tapering is going to cause gold to go up and down; that when gold went up, it was because of tapering, or lack of tapering. When gold went down, it was also because of the tapering, or the lack of tapering, or because I had a rumbly tummy. I would hypothesize that gold might initially go one way because of their reporting and then they would create a back-story for when it went the other way later despite not knowing what is happening and why it is happening.
Perhaps this might be attributed to the fact that Finance journalists and anchors appear to have no formal education in finance or economics. In Bloomberg, of their numerous anchors, I could not find one who had a stated formal education that even slightly resembled a course in finance or economics (to be fair, I did find a political economist, they might actually have a proper economist or analyst working for them in the background and..... I must confess that I had given up after the tenth profile, so do let me know if there are one or two properly educated anchors lurking around there). English, literature, journalism, history and the odd generic business degree seem to be the flavors of the day. Although I believe that it is largely possible to educate oneself in finance, it would be reassuring to know that one or two of the anchors had decided to undertake a financial education, as a symbolic gesture if nothing else. The fact is that Bloomberg is an established financial channel and thus should have no reason to only have anchors who have little real economic education (if anything they have an incentive to hire people with a finance background rather than without), unless it somehow absolves them of any blame should anything happen to be misreported because the anchors really did not understand what they had been told. Ignorance is bliss indeed.
Is it any wonder that they often take cues straight from the investment banks? They have everything to gain and nothing to lose for reporting what others tell them is true.
There have been allegations of paper gold being in far greater quantity than that which has been backed in SPDR Gold itself; an article by GATA back in 2010 had summed it up nicely, making the case that the London Bullion Market Association was trading 100 times the paper than it had gold to back it up with. These allegations persist even to the present. In reality, I am unsure of what to make of this, but I feel that it would be unprofessional for me to leave out a statistic that I personally take into account when I trade.
So, What Would You Recommend?
Should these factors deter you from gold? No, because I believe that the bull is finally here and that it is time to take it by the horns, but one must be careful how one trades, when one trades and what one trades. The three groups of people I had mentioned above would benefit the most if you were uninformed, trusting and lazy. Do the opposite and you simply cannot go wrong. But put down that axe, they're not coming for your gold. Yet.