“But you quoted me $11 less on a Krugerrand yesterday,” the customer complained. “It may only seem like yesterday,” I reminded him, “but, in fact, you called last Wednesday, and the gold price is up 3 per cent since.”
“I hadn’t noticed,” he muttered.
The gold price did quite well in the month of April, but it went mostly unnoticed.
Market rallies come dressed in different clothes. This is especially true for the Gold Market, where rallies have visited infrequently over the past 20 years.
In late 2002 and early 2003, the price of gold behaved spectacularly. We witnessed a rip-roaring run-up in price. It was a Classic Type 1 Rally. For want of a better term, let’s call it a “Blow-Off Rally.”
It was as if Gold had a voice and was shouting to the world, “Hey, look at me. In just 60 days, my value has gone up more than $60. Almost every other area of investment has either collapsed or languished, but I have glowed.
“All you non-believers and naysayers should be falling on your knees seeking forgiveness.”
Even the government mouthpiece financial press and the cable TV business shows — no friends to gold — could hardly ignore the “Blow-Off.” Although they would choke before saying anything favorable, two things became apparent: they knew nothing about gold, but that didn’t prevent them from being miserable watching gold climb against the world’s paper currencies, particularly the US dollar.
During a Blow-Off Rally, the futures markets is an engine where highly leveraged positions lead to wild price fluctuations.
If these fluctuations become violent enough the gold story may make the front page of your morning newspaper, or the lead story at LRC. That didn’t happen this time, but I predict it will in the not-too-distant future.
Such blow-offs are often followed by a significant retrenching, and the 2002—03 version was typical, surrendering 50% of what it had gained.
By contrast, the Type 2 market rally is subdued, even boring. Let’s call it an “Unnoticed Rally.” It certainly went unnoticed by my Krugerrand customer.
In an Unnoticed Rally, the financial press is able to maintain their indifference. Trading in the futures markets remains tepid. Nobody pays much attention to the modest price increases, and there is less volatility.
Market technicians might contend that such increases are more positive. They may be right.
In my apprentice years as a gold dealer, I held strong opinions on market direction and was happy to share those views, even with strangers on the street. After the passing of decades, and getting kicked in the teeth 1000 times, I have changed my ways.
I’ve stopped forecasting, and if you corner me today and ask tomorrow’s gold price, you will note how adroit I am by turning the conversation to what Lew Rockwell is really like, or how modern medicine now deals with gall bladders.
In re-reading this short web-essay, I seem to have regressed. You can surely see a prediction or two above and the implication of higher gold prices based on April’s performance.
By the time you read this, the gold market could be in a shambles, making my observations absurd. It’s like bragging to friends that you haven’t had a head cold in six months. Then, WHAM, here comes the burning throat, followed by the other horrible symptoms.
Uh oh. I better be careful. I must remember to keep in mind what a wise man once told me, “If you want to make God laugh, tell him your plans.”
To this, I have added Blumert’s Corollary: “There is a wholesome force in nature designed to humiliate those who predict markets.”
The fool, having once predicted something correctly, keeps forecasting and eventually all who encounter him see him as the buffoon his wife sees. He never learns and those who follow his counsel are larger fools.
The more experienced prognosticator (see Talking Heads) frames his statements so that six months or six years later nothing can be learned from his words. If clever, he can take credit whether the market is, up, down, or unchanged.
I fear that I have invited the wrath of my own corollary and may be punished by lower gold prices.
It’s like clicking on “Today’s Gold Price” button at LRC and observing that gold is down $4 dollars that morning, but reading somewhere else on the web that gold’s performance was lustrous yesterday in Europe and should be higher in New York.
Blumert’s Corollary at work.
In the old days we were satisfied to get the price of gold once a week. Now, prices are stale in 30 seconds.
The charts below reflect the very positive price performance for Gold and Silver for the month of April, 2003. These prices are reliable
But, you can disregard any predictions I might have made.