Con-tango

Gold talk

I usually stay away from gold, because unfortunately, and I don’t know why, the metal is riddled with peddlers; – maybe it’s the gold fever syndrome hang-up from the old west… I don’t know.

I also avoid gold because I think its lost its luster. Gold was very much appreciated because it has several properties which made it an ideal repository of wealth. First, gold has an excellent ratio of wealth to volume, capable of holding within itself (like diamonds) large amounts of wealth in a small volume, facilitating its transport and storage. Second, and most important, this metal does not decay with time.

But, with the advent of computers, bytes have displaced gold in convenience. With the push of a button, a gazillion dollars may be transported from one end of the world to another; and bytes, if backed-up appropriately, have an indefinite storage life.

Then, Central Banks around the world do not like gold to move in prices, especially the Fed. A gold rush erodes the value of currency, and bankers, as you well know, avoid  getting their loans paid back with monopoly money; so, I prefer to pass up fights against CBs, it’s totally unfair…

But, evidently its caught everybody’s attention lately, prices have moved up significantly, and more recently are behaving bipolar.

So, what’s going on with gold?

I’m convinced the main reason for gold’s rise has been the Bank of Japan’s policy of monetary easing  to reactivate the Japanese economy. In order to protect themselves, Japanese investors bought gold in earnest, which later on attracted a large speculation in the – borrow Yen to buy gold carry trade -.

About a month ago, which coincides with gold’s bipolar disquiet, BoJ hinted that it would begin to reign in on liquidity; which brought about a big counter reaction from the Japanese government, forcing BoJ to withdraw its remarks. Ever since the joust began between these two parties, gold prices have been trekking down with increased volatility.

A few days ago, BoJ officially announced that it had ended its monetary easing period, that it would sustain 0% interest rates (with a 1% inflation target); but, that it would reduce its bank reserves to Y5 trillion from Y35 trillion.

Looking at the gold GC0604 chart, the situation is evident, the gold price advance is seriously hindered, gold prices have not only pierced its EMA(50), but a test of the $580 high failed, and we see an ongoing test of the significant $540 low.

We’ll see, but it doesn’t look good for the gold bulls.