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Gold has already
priced in a lot of good news. Good news for everything else, that is...
SO GOLD in January did what it tends to
do, and rose as equities fell.
That uptrend drew in
"momentum traders" in Feb, pushing gold higher by backing gold's
2014 rally to run further.
But this hot money
perhaps ran into resistance this morning, just below $1300 per ounce. And for
all gold's new-found love (check the flood of bullish stories from Barron's
magazine, for instance), a couple of senior bank analysts say 2013's sell-off
isn't done yet.
Both Tom Kendall at
Credit Suisse and Edel Tully at fellow Swiss
bullion bank UBS warn of "stale longs".
This old, tired money in gold wishes it had got out already...and is now
waiting for the chance to sell at better prices from here.
In particular, says
Kendall, some of the big-money wealth management crowd still feels over-invested in gold.
And as 2013 proved, those "real money" investors are the kind of
participants who really move prices when they buy, or sell.
But how much stale money
now sits with its finger on the trigger? The biggest ETF gold fund, the New
York-listed SPDR trust, has offered a useful proxy for broader
wealth-management exposure to gold in the past. Yet looking at its holdings
now, there doesn't seem much room for another big sell-off just yet.
Not after last year's
horror show...
Now down to 800 tonnes of
metal, held in trust by HSBC somewhere in London, GLD shareholders have
already liquidated the 150 tonnes of gold bought at prices north of today's
level (back between mid-2010 and end-2012).
Plus they sold another
400 tonnes on top, however. So gold would now have to drop another 35% in
price before another tonne of GLD metal slips under water.
Put another way (and
putting aside the fact that today's GLD shareholders might be different
people, who bought at different prices, from those whose demand first brought
that tonne of gold into HSBC's vault), gold would need to repeat 2013's drop
and more to drive more money out of GLD at a loss.
Tom Kendall's bang on the
money in saying that sentiment amongst fund managers needs to turn right
around if gold is to keep rising in 2014. But how big a task would that be?
The scale of ETF selling in 2013, and the size (and shock) of the price drop,
means gold has already priced in an awful lot of good news.
Good news for the
economy...for the stock market...real estate...and for investors wanting a
decent return from interest rates.
They might get it, of
course. But put the hot money aside. The stale money in gold might yet prove
smart, and hold on...or buy more...if prices keep rising from here. Because
that's likely to signal trouble in other financial assets.
Just the kind of trouble gold
helps investors protect against.
Adrian Ash
BullionVault
Adrian Ash is head of research at BullionVault, the secure, low-cost gold and silver market
for private investors online, where you can fully allocated bullion already
vaulted in your choice of London, New York, Singapore, Toronto or Zurich for
just 0.5% commission.
Please Note: This article is to inform your
thinking, not lead it. Only you can decide the best place for your money, and
any decision you make will put your money at risk. Information or data
included here may have already been overtaken by events �– and must be
verified elsewhere �– should you choose to act
on it.
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