Every now and then TMM has the satisfaction of making money, and making money for the reasons they expect. In macro, that can often be more rare than one may think. To wit, we have only this to say to the gold bugs and other trolls that have occasionally frequented this blog.
Gold has been looking pretty weak for a few weeks now to TMM and not because of politics, religious affiliation or the recently cancelled Indian wedding we heard about from a friend of a friend. Quite simply, the flows into ETFs (much of it composed of retail) seems to have gone a bit flaccid as of late. Orange is spot gold, white is total ounces in all the major ETFs - principally GLD US and GBS LN.
That may look like a small blip on a long ride up to many of you but if you look at 2008 during a short and sharp period of liquidation of positions, gold got brutally beaten down to the tune of 25% - and fast. Similarly, a relatively naive regression of gold against total ounces in ETFs the day before yields a very respectable R-square.
Note that the errors are a bit heteroskedastic and the residuals do seem to bunch - there's more going on here but TMM isn't too keen to reveal all their tricks at once. The main point is clear though - when trading a investment that has no objective measurement of value and where demand depends entirely upon how much people want it for the sake of owning it then the usual analytic toolkit of commodities analysts is pretty pointless.
To that end, trading gold in USD is pure speculation but trading it against other things might be less so. Above is the chart of gold/WTI oil. It would seem to TMM that if we are in a recovery and if the new energy bill is going to require that oil companies ensure that all sea otters in the vicinity have hazmat suits when they drill then maybe, just maybe gold is not the best inflation/debasement trade out there. Sure gold is "under-owned as a financial asset" but so are TMM autographs - maybe inflationistas should focus on things that are in short supply and that people actually need rather than living out mediaeval fantasies.
Gold has been looking pretty weak for a few weeks now to TMM and not because of politics, religious affiliation or the recently cancelled Indian wedding we heard about from a friend of a friend. Quite simply, the flows into ETFs (much of it composed of retail) seems to have gone a bit flaccid as of late. Orange is spot gold, white is total ounces in all the major ETFs - principally GLD US and GBS LN.
That may look like a small blip on a long ride up to many of you but if you look at 2008 during a short and sharp period of liquidation of positions, gold got brutally beaten down to the tune of 25% - and fast. Similarly, a relatively naive regression of gold against total ounces in ETFs the day before yields a very respectable R-square.
7 comments
Click here for commentsCouldn't agree more.
ReplyI'm definitely not a gold bug, and can't argue the technicals.
ReplyBut just to play devils advocate, let's assume the rest of this year were to play out like 2008, with a similar magnitude down, but without the drama. But now, you have Americans anxious of the value of Treasuries, everyone anxious on the Euro, Chinese investors who already have too much tied up in empty condos that start slipping in price, and you might have a lot of people looking for safety. And once lift off takes place, you have a big chase by speculators and late-comers.
Also, doesn't it look like the recent dip in flows followed the dip in prices?
I don't own any gold, but I couldn't resist buying some JAN11 140/160 call spreads on GLD.
Demand in Au is based on sound fundamentals ... ummm if I can think of one or two ... fear and deflation. If inflation was to break out (and a solid bull market enveloped the investing community) then the idea of holding the barbaric metal would irk me.
ReplyNeedless to say the inherent value is in the eye of the beholder. Gold nuts see the moon (and hold the shotguns and have the 'out of date' baked beans), I see preservation of that inherent value.
I am not a professional trader, just an investor who wants to protect 'my' capital base and when I read about the cocoa bean trade, the silver market and the to big to fail entities, hft's, the have's and the have not's, I realise that the world that we live in is an awful power-hungry, greedy place to live and those with the money 'maketh the money'.
So investments for me are looking ahead and attempting to pre-empt those greedy bastards, so that at least my capital is protected and I make a modest return. Hence a frequent visitor to maintain my knowledge base and extract value.
Appreciate your blog and keep it up.
TMM
ReplyYou seem to sweating on this GLD-US < GBS-LN chart,
Heres a thought, imagine USA muddles through, even dips slightly in recession, but let's face it it never really has got out of one, the powers that be are successful in numbing the masses in the now changed enviroment of frugality, NO QE = no soup for you.
Low rates forever ( historically) now the bet on gold becomes only an eachway bet, at best.
the errors are a bit heteroskedastic and the residuals do seem to bunch
ReplyIn an investment time series? I'm shocked.. shocked!
FD: short GLD, small.
macro man, I guess the guys who bought physical gold are not going to be under any pressure to liquidate positions soon regardless of price action. they may wake up and rethink the soundness of their investment in a couple of years. however the punters doing the futures, who apparently are net short at the mom, will have to take profit sooner than that. guess we won't see gold dropping like a rock any time soon, short squeeze at some point more likely maybe?
Replythank you for the blog, I am a big fan.
R2D2 you are not far wrong. Some banks are trying v hard to sell the buyside on gold puts but I think this will be a long and painful bleed out. Better to just get short delta-1 or just sell a put and delta hedge down. Its a deep market and there are central banks out there that will ensure this doesn't fall apart all at once. That being said, so long as the deflation trade continues to have its resurgence you've got to wonder how much gold makes sense.
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