Gold Can’t Find a Bid

This was the week Greece inched closest to chaos, as a bank holiday and a technical default caused markets around the world to erupt in turmoil. They recovered somewhat Tuesday, and futures looked stronger Wednesday morning, but on Monday, the NASDAQ Composite Index lost 2.4 percent, the Standard & Poor’s 500 Index lost 2.09 percent and the Dow Jones Industrial Average fell 1.95 percent. Volatility exploded, as the Chicago Board Options Exchange Volatility Index surged 35 percent, its biggest increase in two years, to 18.85.

One would imagine that such a scenario might be constructive for gold. It has been called the best measure of fear, the only real currency, a refuge for those who plan for panic. So how is it doing these days? Spot prices were soft on Monday, despite the wild volatility in equities, drifting down a few bucks from about $1,180 an ounce to about $1,176. They fell a few dollars more yesterday, and are soft Wednesday.

I thought gold was an investor’s best friend during Armageddon.

I have kidded the goldbugs over the years, but the muted response to the latest crisis is surprising, even to a precious metal skeptic. Gold simply can’t find a bid.

This isn’t the sort of response we have come to expect from the “catastrophe metal.” Earlier this month, gold spiked to $1,202, from $1,172, raising hopes of a turnaround. The gold mavens began to dream of a new technical setup, perhaps even a resurrection of the currently deceased trend. There were renewed whispers about $5,000 price targets.

And then … nothing.

I have been writing critically about gold since it peaked in 2011. Its story has become an object lesson in how to manage your positions without letting emotion get the better of you.

Why is gold no longer responding to global catastrophes? Nobody knows for sure, but a few different theories might help to explain its behavior in the most recent crisis:

1) The old narrative has failed. Without a new and improved rationale, buyers aren’t motivated to accumulate more gold.

2) The U.S. economy has slowly improved, and much of the rest of the world is healing, too.

3) Other asset classes have been far more productive and rewarding investments in the last five years.

The failure of the classic gold narrative, recounted in great detail last year, is one explanation. The storyline was essentially a clever sales pitch filled with specific frightening details — the Fed was going to cause hyperinflation, the dollar would collapse, and so on. All of this proved to be false.

Further reducing enthusiasm for gold is the gradual improvement of the U.S. economy. Despite forecasts of imminent collapse, the major economic data — including employment, wages, spending, housing, autos and consumer sentiment — have all trended higher over the last five years. Tales of an impending depression were greatly exaggerated.

Then there are other asset classes. U.S stocks are up 167 percent over the last 5 years. China’s stock market, despite the recent 20 percent drop, is still up almost 10 percent for the year, and it has been on fire the last 2 years.

Each of these is a possible explanation for the lack of response to the Greek crisis. Perhaps a default to the International Monetary Fund is no big deal, and gold has no reason to rally.

Regardless, gold seems to going nowhere fast. Feel free to send me an e-mail explaining how wrong and stupid I am. I have an archive of all the messages warning me that gold would teach me a lesson in humility. “You’ll see” these e-mails smugly assure me, “your comeuppance will be here any day now.” My plan was to respond to each on its fifth-year anniversary with a chart showing the performance of gold versus all other asset classes and the details of how much money has been lost.

What once seemed like a snarky and amusing idea just looks cruel today.

Gold teaches the careful observer many lessons — about narratives, emotion, managing positions, leverage, one-way, can’t miss trades, the efficiency of markets, and story-tellers with product for sale. This is why you should never ever drink the Kool-Aid.

Astute traders ignore these lessons at their own risk.


Originally published as: Gold Shrugs Off Armageddon



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  1. Mbuna commented on Jul 1

    Well, first off gold could be on its way to severe irrelevancy, fear or no fear. The trend is toward digital currency and cash itself could start to be categorized as a “barbarous relic”.
    On the other hand, this is your idea of fear? LOL. We need to redefine the parameters here. You are still defining market fear with respect to gold in 20th century market parlance and I think that is no longer applicable in the present. Greece is the equivalent of a nanosecond flash crash. Big deal? Not. If gold is going to move we need some real, sustained fear. Gimme some contagion with legs! Gimme some long lasting market chaos with dominoes falling all over the place. Then let us see if gold moves or not. But let’s not talk about gold until then because until then- it is irrelevant!

    • intlacct commented on Jul 2

      ‘If gold is going to move we need some real, sustained fear. Gimme some contagion with legs! Gimme some long lasting market chaos with dominoes falling all over the place. Then let us see if gold moves or not. But let’s not talk about gold until then because until then- it is irrelevant!’

      Up by a factor of 4 since 1999, no? Irrelevant? No.

  2. CD4P commented on Jul 1

    Going to make use of the strength in the U.S. Dollar and visit Japan in a few weeks. Hope to avoid acquiring too much Uranium-238!

  3. scone commented on Jul 1

    I’d like to know how many people bought at the top, saw their investment fall, and now can’t bring themselves to buy any more. So maybe behavioral story there.

  4. BennyProfane commented on Jul 1

    This does not bode well for the Rand Paul campaign financing machine.

    Is his father pushing gold in those “financial disaster is just around the corner” commercials I see a lot? Can’t be bothered to watch the youtube video.

  5. rd commented on Jul 1

    I think it is because gold is just another ETF being traded by computers now.

    If a real Armageddon occurs (like what is happening to actual Greeks in Greece), then the corner gold store spot ask prices for physical gold will soar compared to the GLD ETF price. It would be interesting to see what the bid-ask spreads for physical gold on the counter look like in Athens right now.

    • rd commented on Jul 1

      Although actual Euro or US dollar bills are probably a reasonable stand-in for gold in Athens right now as they are portable and fungible in the rest of the world..

    • RW commented on Jul 1

      I’m inclined to strongly doubt gold will become a viable medium of exchange in Greece or even a preferred store of value now or ever: Euros, $USD, pounds, swissies, or digital currencies such as bitcoin before that.

    • willid3 commented on Jul 1

      i suspect most of us have moved on from gold. since its very hard to carry. and almost no one will take as payment now days. course that might or might not have been the goal of eliminating convertibility

    • BennyProfane commented on Jul 1

      If a real Armageddon occurs, your thigh will be more valuable than gold to others.

  6. swag commented on Jul 1

    lol Glenn Beck

  7. theexpertisin commented on Jul 1

    My Remington 780 and plenty of lead is a great substitute for gold.

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