Gold News

Gold Capitulation? Not Quite

Would Einhorn and Paulson please hurry up and capitulate? Oh, thought not...
 
CAPITULATION: the act or moment of surrender, of giving up, writes Adrian Ash at BullionVault.
 
In finance, capitulation is when, after watching prices go against them, people finally throw in the towel. And typically, in the big sweep of things, you need capitulation to mark the end of that trend.
 
Because only when the last bull takes all the losses he can and has sold – or the last bear has given up waiting for a crash and bought – can the market turn itself around.
 
London's would-be homebuyers, for instance. Sitting out the surge in prices, a friend who always thought the bubble MUST burst at some point has just given in, and bought a flat. Gulp!
 
On the other side of the hill, and after getting beaten down by months and now years of falling prices, big-name gold investors are finally throwing in the towel, too. Well, kinda.
 
"This year hasn't been good for gold," said David Einhorn, fresh-faced card shark and hedge fund manager at Greenlight Capital, to CNBC on Thursday.
 
Building his fund's gold investment since 2006, Einhorn switched it in 2009 to physical, allocated gold just like you trade on BullionVault. Because "at a minimum" it would save him money compared to ETF trust funds.
 
Today he's not buying more. Which is capitulation of a sort. But Einhorn isn't selling. "Just in case something goes really, really, haywire."
 
Also failing to capitulate, and sticking with gold, is the biggest bull of them all, John Paulson. Head of the imaginatively named Paulson & Co., his hedge funds' owned $4.6bn of the giant SPDR Gold Trust just before gold peaked in mid-2011.
 
Halving his holding in that fund (ticker: GLD) as prices crashed this spring, however, Paulson kept it flat between July and October. He ended the third quarter with GLD stock worth $1.3 billion. And this week, says Bloomberg, he reportedly told clients that he wouldn't personally buy gold right now. Because the inflation story he's expected for the last five and six years simply hasn't shown up.
 
This, we guess, is as good a sign for gold (and by extension, silver) as we've had all year. Because " Gold bugs die hard," as the New York Times said back in June 1999. It's worth re-reading that story today. If only for Jean-Marie Eveillard's close brush with closing his legendary gold fund.
 
That was amid deafening reasons to quit the market. It was also just before gold prices bottomed at $250 per ounce, and turned 7 times higher as the financial world, in Einhorn's phrase above, "went haywire".
 
Today again, "People are finding it hard to find a reason to own gold," one analyst tells the Wall Street Journal. But how about insurance, Lehman Brothers, or record-high peacetime Western debt levels?
 
All you need is an attention span longer than a goldfish's. And deep pockets, of course, to carry the financial loss which all gold and silver bulls who failed also to invest in the stockmarket in 2013 are now wearing.
 
Insurance pays nothing when nothing goes wrong. That doesn't mean you don't need it. But it does make capitulation all the more tempting when stockmarkets are setting new record highs but you missed out.
 
And the thing with insurance, remember, is you also need to own something to insure. Otherwise, you might wind up just paying the premiums.

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

Follow Us

Facebook Youtube Twitter LinkedIn

 

 

Market Fundamentals