This post is inspired by a pair of Tweets by Fred Hickey on the COT position and a response to it.
While Kuroda’s (BOJ) “Operation Ostrich” continues (h/t to Bloomberg’s Jonathan Ferro), driving the yen 2% lower today (helping the US dollar rally and pressuring gold), at the end of the day there was really good news from the COT report for gold (data as of Tuesday, June 14)
— fred hickey (@htsfhickey) June 17, 2022
So basically they were buying shorts on the way down. Because THAT’s smart 🙄
— TheLostJedi (@TheLostJedi5) June 17, 2022
The Managed Money position tends to be late in entry on the way up, and overstay shorts and longs when reversals are at hand.
Note that the Commission of Traders (COT) reports come out on Friday but reflect the position on the previous Tuesday.
Gold Last Five Days
Sometimes the trend followers get it correct and sometimes they don’t.
Their timing has been mostly good this year but they missed out on some big moves in the past few years.
On a different note, I am glad Hickey seems to have abandoned his practice of calling the commercials “smart money”.
One set of commercials are the miners selling production, another set of commercials are the Jewelry producers and industrial users, and the third set are the hedged market makers who take the other side of trades.
There is nothing either smart or dumb in commercial positioning.
Let’s go back a bit further.
Reminder: the seasonally best time to buy gold is around now(mid-June). Soon, Indian& Chinese(biggest gold buyers accounting for 1/2 of gold consumption) begin buying (for second half holidays & wedding season). That’ll add to the gold fear trade (global turmoil/stk mkts tanking)
— fred hickey (@htsfhickey) June 10, 2022
Gold closed today near $1840.
US Dollar Fluctuations Have No Meaningful Impact On the Price of Gold
Flashback May 11, 2022: US Dollar Fluctuations Have No Meaningful Impact On the Price of Gold
In terms of gold, hardly anything has changed for a month although the miners have been hit hard, impacted by rising energy costs and liquidity issues.
Gold itself brushed off a huge push up in the dollar since the beginning of 2021.
General rules about gold and the dollar don’t work over significant period of time.
Gold vs Faith in Central Banks
I have posted that chart before and have not updated it for a while. Also, I am running out of room for notes.
Is Everything Under Control?
No one can tell you where gold, stocks, or Bitcoin is headed, and I won’t either because I don’t know.
But I can suggest what a key driver of gold has been historically speaking. On that score, I like my chances.
Recent gold weakness reflects a bit of renewed belief in Powell. How much is warranted? And even if it is warranted, what are the odds of a currency crisis somewhere?
End of the 40-Year Bull in Debt and a “Global Depression” Threat
For discussion of the currency crisis idea, please see End of the 40-Year Bull in Debt and a “Global Depression” Threat
The discussion includes a video interview of Danielle DiMartino Booth who commented “If you want a front row seat with popcorn, follow the EM [emerging market] space.”
This post originated at MishTalk.Com.
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Mish
I’ve watched the Dow/Gold ratio for a while now. I’ve also been expecting it to go into single figures for a long time but maybe it’s on its way now? These are basically a good visual value guide using Gold as the base currency. Gold being a more stable currency to use than fiat over longer time periods.
Note those near-vertical lines. These 50‒75 basis point moves people now consider “aggressive” are mild in comparison. The Volcker Fed had multiple hikes of 100 bps or more. Volcker rewarded Jimmy Carter’s appointment by giving him an immediate recession going into 1980. Then they took fed funds 1,000 points higher in the second half of 1980, helping cost Carter the election and welcoming Ronald Reagan with an even deeper recession.
Volcker and his FOMC made no pretense of acting gradually. They did what they thought was necessary, generating enormous pain but finally stamping out inflation. I hope Jerome Powell will find his inner Volcker. This week’s 75-basis-point hike—widely portrayed as “aggressive”—was far short of the mark. Powell is practicing the very “gradualism” Arthur Burns did, and which he later admitted was a mistake.
This means, unfortunately, taming inflation will be difficult, and the Fed will have to clamp down even harder. Would we be better off with a Volcker-style rapid rise that kills demand across the economy? Or getting the recession gradually? I’m sure the Fed staff is telling the FOMC members they can get CPI and PCE back down without imposing such pain. I’m equally sure they have models showing this. We are going to find out if they’re right.
Gold is a commodity that is very difficult to predict the demand vs supply balance, which for me, makes it hard to invest in.
Looking up its uses leads to a wide variety of data, which don’t match up very well.
One site says 80% of gold is used in jewelry and 11% in Industrial uses. I also saw 78% and 11%.
Another site said 47.2% investment bars and coins, 37.5% jewelry, 8.0% technology, and 7.3% central bank purchases.
One said 55.43% jewelry, 25.02% investment, 12.33% central banks, and 8.21% technology.
Its all over the place.
And how does one predict jewelry, investment, and central bank demand?
And most gold never gets used up. The total amount of gold in the world keeps going up every year. So it isn’t becoming more scarce.
And historically gold has been a poor investment.
If you bought $10,000 in gold in 1942 it would be worth $500,000 today.
Whereas $10,000 in an index fund would be worth $51,000,000.
I would expect gold prices to eventually decline given slowdown in the economy.