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GOLD Says "Peak Complacency"

No one likes a whinger ... but I did find myself bemoaning the lack of quality news about precious metals AGAIN. Filling the news bucket on the world's favorite precious metals website - see here - is getting tougher and tougher every day. So it got me thinking ... is it really so ???

A search on Google Trends for a handful of the keywords we look for in bringing you news confirmed the worst. Search volumes on Google for keywords related to precious metals are down on average about two thirds over the last 14 years. And that is a problem.

 

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The gold market is not a big one. If you take annual gold production as a proxy for its "market cap" then it would be the third largest share on the FTSE 100 Index, about the size of British American Tobacco - and yet its status is up there and compared with assets thousands of times its size, like the US Dollar and S&P Index. It is, to put it mildly, a deeply minority sport that punches well above its weight.

A critical component in investment demand for gold has been the oxygen of publicity. Certainly Bitcoin has stolen a good few of our headlines, but relatively few of our customers. But for most journalists gold is simply off the radar. It calls to mind Oscar Wilde's comment "there is only one thing worse than being talked about, and that is not being talked about". We have heard the view about physical being lame corroborated by many institutions that support the market - some suggesting we are at multi-decade lows - from mints, refiners, shippers, insurers, rival physical sellers ; the extent of the crisis seems to us even greater than the independent research houses are reporting. In short, gold is struggling to find friends. Sharps Pixley seems to be fortunate in bucking the trend, with last month sales being our best on record and double our previous best - but it is clear conditions are tough.

So what is the cause and what comes next ?

Certainly the gold price action has left newswires with little to write about, trapped in narrow trading ranges and unresponsive to geopolitical events. More recently an unintended consequence of MIFID II has been a dramatic fall in the amount of research readily available and hence quality analysis is in short supply.

External factors also point to an overwhelming sense of complacency and ennui with market events. Contrary to what some fringe websites will tell you, Google searches for negative keywords such as "recession, "inflation", "crisis" etc suggests we are in a low but steady state. The two major exceptions to this are the terms "WW3" or "World War 3" which is running at about 10 times the recent run rate. If people's search habits and the words used in news reports are a pointer to what people are actually thinking then it seems to suggest a polarisation in views between those that think things are just dandy and those who think armaggedon is a short distance away.

Both scenarios would usually be pointed to as auspicious times for buying gold... jewellery if things are good and gold bars if things are bad. Yet both are lacklustre.

This is an odd report from me in that I don't really have a conclusion to draw other than that the more I know, the less I understand. If 35 years in gold has taught me anything, it is that current conditions resonate with the market of the late 70's and late 90's right before the market exploded higher - but much patience is required because if history is a guide, then it will happen precisely when you least expect it.

Thoughts welcomed ...

Ross Norman

09 Apr 2018

About the author

Ross Norman

Ross started his business career with business guru Sir Clive Sinclair of Sinclair Research in Cambridge, before joining Johnson Matthey as Gold Refining Manager (then the worlds largest gold refiners), then as a gold trader at NM Rothschild & Sons (the Chairman of the London Gold Fixing) and later Credit Suisse, where he was a Senior Dealer in physical bullion trading.

Ross has an enviable record within the London Bullion Market in forecasting the gold price over the last decade and is frequently sought by the media for commentary on the bullion markets. Ross has made frequent appearances on TV (BBC, CNBC, CBC) in newspapers (FT. Wall Street Journal) as well as in the newswires (Reuters, Bloomberg and Dow Jones).

e: ross.norman@sharpspixley.com

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