Punch Drunk on Gold’s Volatility


Our morning ritual features the financial news website Bloomberg first. Just in case something interesting happened in the mainstream media for once.

This morning we were surprised to find our topics of the last three days featuring in all the top news slots. The dodgy financial practices of ‘unsuspecting’ money launderers like Bitcoin, Silk Road (and the Catholic Church) were the lead article. The panda-monium we wrote about on Tuesday featured in the top video section. And the gold price’s wild thrashing about features in the top right hand corner too.

We’re so punch drunk on gold’s volatility, we keep forgetting whether the price had a ‘2’ or a ‘3’ in the hundreds column the last time we checked. One theory on the sudden sell off has to do with currency volatility. People who want to make a big leveraged bet on the price of gold often borrow the money in a foreign currency to pay lower interest rates. Apparently a move in the Yen after a surprise Bank of Japan announcement on stimulus forced someone who had borrowed in Yen and bought gold to unwind their position suddenly by selling out.

Don’t worry if you don’t follow all that. The point is that gold has become tied up in the kind of financial shenanigans that it is designed to avoid. We think it was newsletter writer Grant Williams who explained that the gold price is not the same as the price of gold. The first is tumbling and jumping all over the place in financial markets. The second is all about the tangible version of the metal and reality. It doesn’t really change much over time. In fact, you could interpret the volatility in the gold price as a bullish sign for the price of gold because it shows there’s financial instability.

Back to the front page of Bloomberg. All this attention focused on the same topics you’ve been reading about here makes us wonder what’s really going on. What are we missing? After all, it’s not like the mainstream media focuses on what’s important. Like the James Bond villain and media mogul Elliott Carver, it’s tomorrow’s news that has us obsessed.

Sometimes the events that matter are taking place behind the scenes where only a few can see them. Sometimes they happen so slowly nobody notices. Sometimes they are so painfully obvious, nobody bothers with them.


Nick Hubble+
for The Daily Reckoning Australia

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Nick Hubble
Nick Hubble is a feature editor of The Daily Reckoning and editor of The Money for Life Letter. Having gained degrees in Finance, Economics and Law from the prestigious Bond University, Nick completed an internship at probably the most famous investment bank in the world, where he discovered what the financial world was really like. He then brought his youthful enthusiasm and energy to Port Phillip Publishing, where, instead of telling everyone about The Daily Reckoning, he started writing for it. To follow Nick's financial world view more closely you can you can subscribe to The Daily Reckoning for free here. If you’re already a Daily Reckoning subscriber, then we recommend you also join him on Google+. It's where he shares investment research, commentary and ideas that he can't always fit into his regular Daily Reckoning emails.

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