On December 18th 2012, a firm of UK ‘Wealth’ managers bought just over £17,000 in a Gold ETF via brokers Charles Stanley on my behalf.
Two days later, gold prices plunged, hitting lows not seen since August, after the U.S. Commerce Department reported an unexpectedly robust reading on third quarter U.S. gross domestic product.
As a result of this ‘robust’ outlook, my investment dropped $25 an ounce immediately. But in real terms, the gdp outlook is about as robust as the Zimbabwean dollar. The revision was driven almost entirely by increased inventory accumulation and a jump in federal spending — factors unlikely to be repeated in the final quarter of 2012.
“It’s a nice headline number,” said Nigel Gault, chief United States economist at IHS Global Insight, “but it exaggerates the underlying momentum in the economy. Sustainable improvements in growth are not driven by inventories.” (…is the correct answer).
Furthermore, the figures show that spending by businesses on equipment and software declined by 2.7% in the third quarter – the first decrease since the end of the recession in mid-2009, and a classic symptom of poor investment confidence.
In the greater scheme of things, it doesn’t really matter: once the Q4 data show a softer outlook (and the EU news gets worse) in the New Year, gold will more than recover. (There’s also a seasonal factor here too, in that funds often run down holdings in this kind of business during December).
But as ever, caveat emptor applies: ignorance and stupidity on the part of markets are often just as dangerous as deliberate fixes. These ‘markets which must always decide’ are only motley collections of panicky money-obsessed neurotics. Markets ‘deciding’ is a long way from markets being ‘right'; but that’s just another feature of the many-layered hill of BS that is neocon theory.
However, the upbeat report from Commerce makes my nose twitch a little in retrospect. Bureaucratic statisticians lacking even an iota of common sense is all well and good as an explanation, but surely no Federal department is that dumb when it comes to releasing numbers of such apparent import.
On an even less trusting note, I did like the frank, zero-BS accuracy of this output from Zero Hedge yesterday:
‘Finally, we must question the morality of Fed programs that trick people (as if they were Pavlov’s dogs) into behaviors that are adverse to their own long-term best interest. What kind of government entity cajoles savers to spend, when years of under-saving and over-spending have left the consumer in terrible shape? What kind of entity tricks its citizens into paying higher and higher prices to buy stocks? What kind of entity drives the return on retiree’s savings to zero for seven years (2008-2015 and counting) in order to rescue poorly managed banks? Not the kind that should play this large a role in the economy.’
Precisely the same entirely deserved comments apply to the shower we have ‘managing’ things over here in the UK. They should of course be managing things for us (we having paid through the nose for this disaster from the start) but they are, as ever, managing things on behalf of those on their side, with money and/or the capacity to ruin them. This applies as much to Labour vis-a-vis Northern Rock as it does to the Tories over Hackgate and banker bonuses.