The Sleeping Gold – II

Markets don’t know how to weigh, allocate, measure, count, subtract or add prices. We did not say that. Richard Thaler said it in 2003 “Can the markets add or subtract?” Though Lamont and Thaler were mentioning about failure of arbitrage to correct mispricing, I don’t think they would have thought that the violation of law of one price rule could extend to the violation of law of equivalent sound bites i.e. every 1% of move in gold should create an equivalent news bite. The violation (disproportion) is so obvious that though Gold has been stagnant and negative from Aug 2011, registering a net loss of 20% from 1,900 to 1,500, but it was the one week move from 1,500 to 1,400 a fall of 7% that overshadowed all the Gold news of the last 68 weeks. And suddenly we have so many bears out there starting from Goldman to Soros and from central bankers to bloggers.
This is what we said in sleeping gold (07 Feb 2012) “Gold is a premium asset that has slept for 17 months. You can give it a few months here or there, but we don’t think you will get a better chance to buy gold than now. Gold will never move from best to worst. It will wake up.” The asset did shake up (wake up) by having the worst two days fall in 33 years.  If the media is celebrating the fastest 10% fall in two days in three decades, ok! it’s news worthy. But how can an asset already falling (ok stagnating) for 17 months get bearish now. Is Gold not in bear (stagnation is a corrective) market since Aug 2011.
Talking about sound bites; the latest Economist podcast has an urgent tone. “Plunging as we speak… officially bear market… liquidity of selling does not seem to be stopping……unlikely that bull-run would continue…US economy looks stable…. Worst case scenario euro zone off table….safe heaven point of view off table….fed minutes suggest no sign of inflation taking off…as Fed tapering their…flee to gold theory has less power…Cypriots mooted selling gold reserve…What if Italy with 2500 tons of Gold decide… lot of supply out there…not heard from the Gold bull Paulson…Soros reduced gold positions and out…the big names got out…