Minds are made up to try to continue crisis investing. To wit, the much better than expected US housing starts figures this morning; they made for a paring of losses in the gold pits. Makes sense, no? Not. US homebuilder confidence may have taken a surprise turn lower this month, (and helped gold accelerate its run to fresh records near $1,285) but the 10.5% jump in new construction –which appears to contradict builder sentiment – made for the same effect in gold, go figure. Here is a market that will use any/all excuses to push higher. Sounds all too familiar.
Yes, indeed; bettors keep on betting the other way, despite this morning’s successful (five times oversubscribed) sales of $2 billion worth of Irish bonds (previously considered radioactive), and despite statements that Ireland will not knock on the EU or the IMF’s doors for a ‘funding package.’ Even the perception that the Fed may offer no candy to carry traders later today failed to dent the pervasive anti-Fed/dollar/economy bets that are manifest in the yellow metal (and other, related assets).
Rounding out the Ripley’s-flavored assertions that investors are sending to the shredder, the Bloomberg survey of 1,408 investors, analysts and traders that finds that nearly two-thirds of the surveyed feel that the global economy did make it through the financial crisis and that it has stabilized during the two years after the Lehman collapse.
No list of Ripley-esque quotes would be complete without the mention of a stark warning by uber-doomsday-prophet Marc Faber. You know, no gold bubble, gold to $X,XXX.XX per ounce, America only produces beer and prostitutes, etc. While asserting that gold is still ‘cheap’ (try calling India) Mr. F alerted his Hong Kong audience that “under the right conditions, there could be a pullback as high as 30 percent,” [that would give us $890 gold].
“He cited the 50 percent drop in gold prices [that would yield $640 gold] in the 1970s, where prices fell from $195 an ounce to $105 an ounce, although they resumed their upward climb to over $800 an ounce afterwards.” No mention was made of what happened for 19.6 years following the January 1980 $845 gold peak. Also no mention of what formula was employed to label gold as ‘cheap’ while factoring in a still-possible one-third correction in values (seems like at $890 gold would be indeed cheap(er), no?
But, who knows? Marketwatch’s Brett Arends concludes that as much as he likes gold and that as much as he thinks that it might just go higher, it is effectively impossible to value the metal. He nukes the argument whereby gold’s ‘value’ (if there is any) is to be computed on the archaic formula that takes the expansion of money supply and tries to arrive at $X per ounce for gold. No dice, says Mr. A, relatively bullish as he might be. Right now (countered his interviewers) the gold bets are negativity-based. That, and cheap dollars courtesy of the Fed-based, we might add.
Then again, it could just be that all this negativity and crisis-rooting is simply a reflection of larger social trends, such as the one the Vanity Fair editor Graydon Carter identifies as an “America [that] went from being an essentially optimistic nation to being an essentially pessimistic one, and finally one that seems to be just plain angry all the time. We are now defined more by what we don’t like rather than what we do like.” Thus, why cheer the recovery, housing starts, Irish bond sales, and such, when you can still dance on a pile of rubble and try to fan the destructive flames that might still lurk beneath it all?
Faites Vos (Fed) Jeux,
Jon Nadler is a Senior Analyst at Kitco Metals Inc. North AmericaWebsites: www.kitco.com and www.kitco.cn