If markets seem irrational, this explains why.
>>You’ve got massive amounts of money that are computer-trading on momentum<<
>>I think there’s a lot of speculative capital in the gold market right now. It’s not what I would call gold investment flows in the conventional sense. You’ve got massive amounts of money that are computer-trading on momentum, and that’s in the gold market as well. It’s much larger in the S&P and the stock market, but it’s in all of the commodity markets as well.
The commodity markets, in that context, are a lot less liquid. And you’ve got a natural imbalance between supply and demand, particularly with the rollbacks of supply in South Africa. Similarly with the apparent capping of Washington Agreement/Central Bank sales. Your supply is relatively contained, which makes it as bullish as you can ask for. You’ve got Japan, China, India, the whole world sucking up gold; that by itself was enough to put the price up.
But by that you’ve also attracted billions of trading pool money from hot money. And it’s the hot money that worries me. You know, you have a one-day crash of 10% on the S&P, every market’s going down. And it’s basically because in essence the computer that trades that particular fund just says, “Sell whatever has a bid.”
Bear in mind that we’re getting into a period of substantially greater volatility. As a stock market indicator, we used to get really excited whenever the upside-downside volume was a 9:1 ratio. Invariably it happens on sell-offs because fear is a more urgent emotion than greed. So whenever you had a 9:1 day, that was really pretty meaningful. To put this in perspective, in the period of 1994 to 2000, we had a total of 15 of those 9:1 days, in a space of seven years. We’ve had 32 of them in the last year.<< |
