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 crowdstill 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.
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