Comic Volatility


These posts are starting to sound a bit like comic books excerpts. But hey, don’t blame us…we’re just describing what we see in the gold market.


After plummeting around $150 the previous two days, gold slid another $40 in early trading today, from $1,750 per ounce all the way down to $1,710. Now it’s back in the black for the day, up about six bucks to $1,756. That’s an $80 move…in just a few hours!

Readers will notice we’re being a little loose with the numbers here. But what’s the point of painfully exact figures anyway…by the time we’ve struck the keys on our computer they’re out of date anyway.

Inspired, perhaps, by the recent volatility, Fellow Reckoners have been writing in the past few days to ask where we think gold is going. Will it continue to fall, or is it heading to the moon? Our answer, unhelpful though it may be, is “yes.” First the former, then…when the Johnnies-come-lately have had their pockets emptied, the latter.

So what about the short-term? Next week? Next month?

“Gold looks like it has gotten ahead of itself,” opined Bill in yesterday’s reckoning. “It looks over-bought. Besides, investors may be expecting too much of the Fed.”

As you know, Bernanke and Co. will meet tomorrow in Jackson Hole, Wyoming, for their annual powwow. It’s the same gasbagging fête at which, two years ago, Bernanke declared, “The prospects for a return to growth in the near term appear good.”

A New York Times piece captured the feel-good mood of that 2009 meeting:

Central bankers from around the world expressed growing confidence on Friday that the worst of the financial crisis was over and that a global economic recovery was beginning to take shape…

Speaking to central bankers and economists at the Fed’s annual retreat here in Grand Teton National Park, Mr. Bernanke echoed the growing relief among European and Asian central bankers that their own economies had already started to rebound.

Yes, and haven’t things gone just swimmingly in Europe over the past 24 months! You know, notwithstanding the ongoing meltdowns in Greece and Ireland…the various bailouts on the table for (or in the pockets of) Portugal, Spain and Italy…and the rapidly intensifying riots in the respective capitals of these nations and others across the continent. This morning, for a bit of perspective, the yields on two-year Greek bonds had blown out to 46.38%, a record high. The second of the Greek bailouts has now, by almost any definition, failed. The question now; which of the PIIGS will be next to the slaughterhouse?

Indeed, things on the continent are going swimmingly.

Misreading the situation at the time in similar fashion was Stanley Fischer, governor of the Bank of Israel and a top former official at the International Monetary Fund.

“It is reasonable to declare,” spoke Mr. Fischer, “that the worst of the crisis is behind us, and that the first signs of global growth have appeared earlier than we generally expected nine months ago.”

Bravo, gentlemen! Bravo!

What will these wizards conjure up next, investors around the world are wondering. Addison offered a prediction in today’s edition of The 5-Minute Forecast:

“Our guess,” he wrote, “[Is that] This year’s speech will turn out to be a non-event. But given the market’s performance on Aug. 9 — when the Fed committed itself to near-zero interest rates for the next two years — look for some crazy swings between 10:00-10:30 a.m. EDT tomorrow while traders attempt to parse the transcript.”

In other words, hang on to your hats, folks. This ride could get bumpy.

For obvious reasons, criticism in advance of an event is not as easy (nor as fun) as criticism with the benefit of hindsight. And so, we’ll await the results of tomorrow’s chinwag before passing further judgment.

Joel Bowman
for The Daily Reckoning

The Daily Reckoning