Gold News

The Fortune of Truffles

War in France? The Paris stock market just enjoyed its best week in a month...
 
"YOU can't eat gold," is one of the idiot arguments you'll hear against buying the metal from time to time, writes Adrian Ash at BullionVault.
 
"That's right," you could reply. "Whereas you can eat white truffles...shaved onto your Michelin-starred dinner and charged to your bill by the gram. 
 
"That must be why white truffles just keep getting more and more expensive...while gold struggles."
 
Even the idiot will look at you blankly. You can't be serious. Surely something else is behind the 70% rise in wholesale white truffle prices this year... 
 
...and maybe simply being edible isn't the best measure of where an asset's price might head. Perhaps investment flows and credit count for more.
 
US analyst Robert Prechter likes to tell a nice parable on a similar point.
 
Imagine the devil offers you a bargain. He will tell you tomorrow's headlines today. You must then choose to buy...or sell...the stock market.
 
Long or short, you simply have to hold your bet for a couple of trading days. Let's say 1 week. Or a month if you think the news deserves it. 
 
Ready? Here goes... 
 
Tomorrow in Dallas, Texas the wildly popular US president will be shot dead. 
 
How should you bet? Will you buy or sell the US stock market? 
 
Well, if you chose to sell the Dow Jones Industrial Average after it slipped 1.3% on Thursday, 21 November 1963...the day before JFK was assassinated...you would have made money by the market's close on that dreadful Friday. 
 
The Dow dropped almost 2.9%.
 
But the next trading day...and the week after that? 
 
The Dow rose 4.5% on the Monday, slipped on the Tuesday, but added another 1.3% on Wednesday. 
 
Overall, within a week of JFK's murder, the Dow traded 2.4% higher. And inside 3 weeks it was marking new all-time highs. 
 
In fact, that drop on 22 November 1963 proved only a blip in the Dow's strong bull run from spring 1962 to autumn 1966. And Prechter's point is that news headlines really don't drive financial markets. Just like edibility doesn't. 
 
You can't eat gold, Dollars, or share certificates. (Although yield-hungry fund managers buying bonds with negative yields might yet get their own heads handed to them on a plate.)
 
Fast forward to the awful events in Paris ten days ago, and the CAC40 index of France's major stocks has since enjoyed its strongest week-on-week gains in a month, reports Bloomberg. 
 
"Fewer than 10 stocks have fallen, among them Accor, Europe's biggest hotel operator, which dropped 4.7% on Monday...[but] clawed back more than half of those losses."
 
Is this patriotism? Defiance? Or have investors no shame? 
 
Well, "the CAC40 index," replies Bloomberg, "remains one of Western Europe's best performing equity indexes [all of] this year." 
 
And as Time magazine notes, "More likely, it's a sign of investor faith that central banks will do everything in their power to prevent a recession in the immediate aftermath of a terrorist attack."
 
Mario Draghi, head of the European Central Bank, didn't mention the Paris attacks in his speech Friday morning.
 
But he fired up the money-copter regardless, fretting that inflation is too low and vowing to do "what we must" to fix that little crisis for consumers, savers and pensioners on fixed incomes.
 
As for Robert Prechter's parable, he believes it shows how financial markets don't watch the evening news or read the papers. Instead, they do what they do thanks to deep, near-mystical forces of human nature revealed to technical analysts by price charts.
 
Prechter's particular thing is Elliott Wave counting. And as it happens, one technical analysis from a bullion bank last week said gold prices are marking a "terminal" Elliott wave in this bear market starting back in 2011.
 
If a true low does strike soon...or is now passing...Draghi's December dash to the money-copter might coincide.
 
The Fed's much-delayed rate rise from 0% could then prove a news headline to ignore next month. If it actually happens.

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.

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