Gold price is down; reasons to feel good about that
Gold futures have declined, trading near the bottom of their recent price range, which is $1240 an ounce. (The spot price, which is what Kamaaina Loan uses to buy or lend on gold, is a little higher, about $1253 this morning; silver is below $19, which is the low end of its range, too.)
When the futures price is lower than the spot price, that suggests the big traders are expecting the price to continue to decline, according to Kitco.
So why should anyone feel good about that? Well, as pawnbrokers dealing in gold, we don’t feel especially good about it; but there is a bigger world out there, and falling gold prices generally (but maybe not always) suggest that people feel pretty good about the future. Despite bad news — fighting in Ukraine and Iraq and Syria, disease wrecking the already not-too-good economies of west Africa, nervousness about elections in America and Scotland, apparently “people” are feeling pretty chipper.
Well, what people? People who control the bulk of the world’s gold exchanges.
And why should we think they have an especially good handle on the future? Now, that is a complicated question. The short answer is that studies have shown that among people who make predictions (which is what futures trading is all about), the trend among the many tends (but only tends) to make a better forecast than any one particular guru.
In the Financial Times, Tim Harford reports (“How to see into the future”) on a study that supposedly supports that idea. Of course, for every trader who offered a pessimistic price, there was another who disagreed with him, but the trend is supposed to be the thing. And the price trend is down.
(There are some real problems with the study, the main one being that its time frame is so short, with participants being asked to make predictions one year out. As we know too painfully, someone who forecast in 2006 that the stock market would crash [and there were such people] was only too right, but he would have looked wrong for the next year and more.)
Anyhow, so the theory goes, precious metals are a refuge in times of trouble, and so when people are expecting trouble, they should be bidding the price up. Instead, the big money is bidding it down, which ought to forecast rosy dawns and blue skies ahead.
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