Jim Grants comments on gold
Uncertain value
" 'Markets love certainty,' Jim Grant explained to the attendees of the
first-ever Grants International Conference. "They abhor uncertainty. If
you give markets certainty, they will gorge on it. Certainty elicits
excess, which then challenges every contrary-minded person and causes
them to be early and unhappy.' Though Grant was speaking in parables,
the audience was given to understand that gold's lengthy bear market
was one particularly notable excess born of certainty. Gold was sold to
excess thanks to the seeming certainty that central banks stood at the
ready, like volunteer firemen, to extinguish any spark from the metal
that could become an incendiary financial market force. The banks'
continuous physical sales and unremitting gold leasing produced the
universal expectation that gold could never mount a substantial rally-a
certainty with which speculators fell in love. A cottage industry
emerged to facilitate forward sales, then short sales, then short sales
of derivatives, then structured naked option straddles on derivatives etc. The
oldest form of money became the newest form of risk-free
speculation...until it wasn't. On September 26, when the European
central banks pledged to restrict sales and curtail leasing, gold
became money again. Even the shorts were forced to believe it.
Certainty has been removed. Contrarian investors are less unhappy. " |
