Last week, I got an interesting call from the UK. A learned, finance lady called me up, and was trying to sell me the idea of investing in her gold-backed financial instruments. I didn't buy her idea, and, consequently, she failed to sell her products to me. We had some interesting discussion on the phone -- she was betting on the gold price going north, and I was making her understand that the gold price will go south, hereon! We both failed to convince each other.
Her position on gold: it will go up as it has come down a lot. In other words, gold has seen a large correction, and looking at the historical trend in the gold price, it will go only north, hereon! Indeed, pretty optimistic lady! :-)
My position: The past is not a good indicator for predicting the future. Markets, by and large, don't work like that. Moreover, the world has, of late, changed a lot, as it doesn't work the way it used to. All key players -- traders, speculators, investors and governments -- manipulate markets like anything. The recent hike in the gold price (between 2009 and 2012) was not only because of the speculators/investors who were hoarding on to gold, but also because of the governments worldwide which were busy hoarding on to gold. However, their purposes were, by and large, the same: to hedge against the foreseeable inflation and to hedge against the greenback going south -- both of which have not yet happened even after three years of their prediction -- or, to but it in a better way, they never understood how the world worked and how economies were integrated! That's the precise reason, why some less-dumb players have started offloading their gold hoardings, leading to some neat correction in the price of gold. My back-of-the-envelope analysis says that gold will be trading between $950 and $1050 by the end of this year!
Of course, she didn't buy my analysis, but, instead, assured me of her calling me again, if I get right in my prediction -- by the end of this year. Lady, I will be waiting for your call! :-)
Her position on gold: it will go up as it has come down a lot. In other words, gold has seen a large correction, and looking at the historical trend in the gold price, it will go only north, hereon! Indeed, pretty optimistic lady! :-)
My position: The past is not a good indicator for predicting the future. Markets, by and large, don't work like that. Moreover, the world has, of late, changed a lot, as it doesn't work the way it used to. All key players -- traders, speculators, investors and governments -- manipulate markets like anything. The recent hike in the gold price (between 2009 and 2012) was not only because of the speculators/investors who were hoarding on to gold, but also because of the governments worldwide which were busy hoarding on to gold. However, their purposes were, by and large, the same: to hedge against the foreseeable inflation and to hedge against the greenback going south -- both of which have not yet happened even after three years of their prediction -- or, to but it in a better way, they never understood how the world worked and how economies were integrated! That's the precise reason, why some less-dumb players have started offloading their gold hoardings, leading to some neat correction in the price of gold. My back-of-the-envelope analysis says that gold will be trading between $950 and $1050 by the end of this year!
Of course, she didn't buy my analysis, but, instead, assured me of her calling me again, if I get right in my prediction -- by the end of this year. Lady, I will be waiting for your call! :-)
