In this article, I intend to explain yesterday's gold spot decline with what financial reports have told us; once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth.
Syrian War And the Flight Into USD And Treasuries
What the media has done once again is create a false association between gold and war; first they cite the Syrian war as a reason for gold's rise, and then proceed to convince people that the smart money is going into the US dollar out of gold or implying that the US dollar is the ultimate safe-haven. To prove it they show us an epic crash in gold spot today 28th of August and into the 29th, with it crashing 19 dollars from its high. This false association between gold and war is being used to convince people that if gold cannot rise in the face of war, it is a truly worthless metal. In fact it may be later found that war is entirely unlikely, so oops I guess there goes the only reason for the gold spot's rise (I actually find out much later that Bloomberg had written a report after I had written this, discussing this very idea. I have included my discussion of that report at the end)
Although the prospect of war should very well improve gold's performance, I say that it is a false association because it is not the main factor affecting the recent build-up in gold. News articles overlook theUS's fumbling recovery, enormous…no, ginormous debt (it's a real word now) and a dozen or so real economic factors and focus on reasons that while logical, are in fact of relatively small importance because the upward trend had already been observed long before war. In this way the media draws in panicked crowds and drives them out as quickly as possible when these 'reasons' do not come to play, or another 'better' safe haven such as US dollars or Treasuries come up.
Seriously, the very financial instruments that are going to crash because of the non-recovering economy, which will be further affected by war-spending which benefits nobody financially, is a safe haven during a war of its own making?This surely does not make sense, and I can prove that it is not the reason for gold's crash.
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You see, the USD Bullish index UUP is up 0.4%, but it has fluctuated in that range more or less every day, and is down from the highs of the month previous. Although the UUP seems to be headed up again today, I believe it to be a result of media reporting rather than the other way around, and anyway is still insufficient as an explaination for gold's spot crash. Can I explain it though? I do not know, but it may be related to my previous observations.
On a side-note: this is not the only false association that has been backed by the media, first it was inflation, but there was 'low' CPI which would create losses in gold and then the prospect of tapering, which would apparently reduce inflation further, resulting in greater losses in gold. This statement from the last article I had linked to from Market Watch stood out however:
"Geopolitical tensions may also lead the Fed hold off the reduction in stimulus, some analysts have said. The Fed's $85 billion worth of bond buying per month has been aimed at spurring economic growth."
No Tapering? No problem! We clearly meant to do it but gosh darn this war came out of nowhere…
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Guess we'll just have to flush all those hundreds of articles discussing tapering down the toilet, oh well.
In India we see conflicting reports showing demand for gold rising as the rupee falls and demand for gold falling as people trade gold for cash. Wow, I guess 2-3 hours (Check out the time stamps on those articles) is sufficient for people to start doing the complete opposite of whatever they had been doing previously. Funny that this change of heart comes with the fall of spot, which does not react to physical buying immediately, even assuming that the Indians had flip-flopped. I suppose the two news reporters could have just coincidentally been reporting in different parts of India, but that would not excuse the use of a small sample of people to extrapolate their preconceived ideas onto the whole of India.
Side-note: it seems India is going to buy gold from its citizens now. They seem rather desperate, seeing as their 90 billion dollar debt is so very large (the Fed creates almost that much money in a month FYI). Seems they are even considering selling off gold to repay the debt, which could dampen gold prices, and we have a new Cyprus all over again. I wonder what the chances are that they would actually sell though. Seems they are going to sell US dollar reserves as well, no mention of the fact that this could depress dollar value.
There Is 'No' Reason To Hold Gold
By the way, according to these experts, it is too late to buy gold; it would seem you should have bought a month ago, when the experts told you to….Wait, Goldman and JP were telling you to sell gold?? Oh well, just a coincidence then, clearly you should not buy gold when it's going down, going up, or going nowhere! There is never a case for gold. Goldman's long you say? Clearly they've been wrong before (but still profit regardless) Syrian war Syrian war Syrian war We're not tapering Syrian war Syrian war.
On a side-note: It seems this guy from Goldman saw it all coming Wednesday, the 28th. So we finally have our answer for the gold miner crash. As for the gold spot crash that followed, it may be argued that gold buyers had decided to follow his recommendation today... But manipulation is manipulation damn it. Need I mention again that having this spot crash come after a concentrated sell-off in the miners makes no sense, and is incredibly profitable to someone who had sold on the very day before (for arguably no good reason other than he had vaguely feltthat it was overvalued)? What a stunning coincidence that 'people' take their profits in miners a day the spot reaches a high; in the real world spot drives gold miner valuations, not the other way around. We all know there is no way for anyone to have known the spot would crash just so suddenly, especially with an unexpected war thrown into the mix.
One final note: The gold spot has declined slightly to 1405 today yet gold miners are up. Perhaps the same trader had bought back all his positions and told his clients to do so as well before making yet another announcement.
I see no change in the fundamental reasons for gold, and many attempts at confusing the general public on the behalf of the financial media. As such, if the real reasons for gold had always been the same. If you have eliminated all that has been reported to explain the gold spot, whatever remains, the manipulation of the spot, which although seems improbable, must be the truth.
I intend to hold my gold shares. I'm going down with my ship if I must, and I may be wrong, but I am a fundamental-contrarian to the end. I need a rallying cry, something dashing. Follow the yellow brick road!
Edit (one day after I had written this article): Gold Spot is down again to 1390. No new reasonable explainations are to be had.
Bloomberg has finally found a reason to bash gold again, and claims that the Syrian war is now unlikely because the UK is not in it. It repeats this assertion several times in other articles. False associations crumble so the reason to buy gold crumbles too, the real reasons forgotten. Bloomberg further reports that now it is time to focus on the robust American economy which has grown higher than expected (after revising them with more lenient conditions, which is to be expected, and is still in the forecast stage, which has been wrong before, remember how first quarter had been 2.4 before being revised down three times) and the unholy prospect of tapering again. That the reasons against gold can switch within a day or two and switch back is profoundly amazing to me, and how switching up the reasons provides a reason for gold when it goes up but always predicts a decline in gold because the previous reason no longer applied. Speculating on the very likelihood of the war would seem to be suicidal, and far from a foregone conclusion in my opinion, but I suppose that Bloomberg either has a high risk tolerance or some sort of ability to see the future.