Campbell’s Critique: Some Gold Prognostications are Well Based, Some Much Less So – Here’s a Comparison (+2K Views)

When forecasting, many economists and commentators fail to focus on the dramatic change in inter-country dependence in our ever more globalized world…and fail to let the actual markets influence their views. Below I critique two articles, rationalizing what they see for the price of gold for the balance of 2012.

So says Ian R. Campbell in excerpts which Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited below for length and clarity. This paragraph must be included in any article re-posting to avoid copyright infringement.

Campbell goes on to write:

Article #1 – A Wrongly Based Prognostication!

A March 26 article* suggests that we should not expect to see new highs in the price of physical gold this year based on a review of what the author calls Secular Bull Market periods. He puts forth the contention that the 13^th year of the typical 17 year long historic secular bull market is a year of weakness and retreat and that 2012 is the 13^th year of such a period for physical gold…

My Comments: The author’s views do not make sense to me for the following reasons:

1. the author uses a generality to support a specific – that is, he says the ‘secular bull market’ average elapsed time period of 17 years applies to “equities and commodities”, he does not say it applies specifically to physical gold. To apply a generality to any specific typically doesn’t make sense;
2. the author does not address let alone weigh in his analysis the fundamental drivers of the physical gold price which include prevailing:
   • world and country-specific economics;
   • market safe-haven perceptions;
   • U.S.$ exchange rates;
   • world and country-specific financial market risks; and,
   • financial contagion risks,
3. the author fails to consider the substantive changes in the current world economic and technological environment.

With respect to point #3, I posted the following commentary in both Seeking Alpha, and on the munKNEE.com site.

Although none come to mind, while there may be other good reasons to believe the gold price trend will retreat in 2012, a historical secular bull market period of 15 – 20 years – with an average of 17 years – isn’t one of them.

When forecasting, many economists and commentators fail to focus on the dramatic change in inter-country dependence in our ever more globalized world, and on financial market game-changers wrought by high frequency algorithmic trading, among other things. Historic data generated from fundamentally different economic and technological times can’t be relied on by those making prognostications and forecasts in the same way they could be up to perhaps as late as 1995. Imagine using economic data from the pre-industrial revolution period to forecast economic trends after 1850.

If 17 years means anything today in the context of a short-term physical gold price prognostication, that is only by happenstance.

*Read: Don’t Expect New Highs In Gold This Year. Source: munKNEE.com, from a Seeking Alpha article written by Robert Hallberg, March 26, 2012. Reading time 4 minutes.

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My Comments: I know Jeffrey Christian and believe him to be a very smart and well-connected commodities markets observer and analyst. Christian:

1. bases his views on his perception that “fears that the global financial system will collapse have subsided”, in circumstances where “some of the underlying fears that drove investors into gold are still present including, uncertain economic conditions”;
2. to the extent he is reading the gold and financial markets correctly, is correct in letting the markets influence his views.

Irrespective of what an individual thinks or believes:

• It is the perception of the relevant markets taken at each point in time that dictates the price of something.
• Where the markets are at any point in time [is but] a snapshot of market participant consensus.
• Market consensus perceptions can change quickly, particularly in dynamic, less predictable, and volatile times.
• [When consensus perceptions] do [change quickly], prices likewise can change quickly.
• We are just coming to the end of Q1 2012 [and] nine months is a long time to forecast in the current uncertain economic and financial market times.

*Read: Gold Prices Already Peaked in 2011: Report. Source: CNBC, Lori Spechler, March 27, 2012. Reading time 3 minutes.

Editor’s Note: The above article has been has edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.

Other Comments/Critiques by Ian Campbell:

1. Ian Campbell Comments on the World vs. Market Reality Disconnect & the “Nerds on Wall Street”

The world is on the verge of becoming a cauldron of Disorder [y]et the market is orderly for now and people refuse to fully acknowledge it. This inability to compartmentalize the “world reality” from the “market reality” is costing investors money. The world isn’t likely to end well in the not too distant future but for now the market is doing just fine. Words: 610

2. Campbell: Balanced Opinions Regarding Gold & Silver are Paramount – Here’s Why

If you hold, or are considering holding, physical gold or silver or both, [it is imperative that you] read as many ‘balanced opinions’ as you possibly can with respect to ownership of each. [Here’s why]. Words: 337

3. Campbell’s Critique of Meredith Whitney’s Municipal Default Claims

Meredith Whitney has resurfaced on the subject of U.S. Municipal defaults stating that a “tidal wave” of defaults in the municipal bond market is still building and will eventually hit the United States [although her views are at odds with those of] Moody’s Investors Service [who only see] a small but growing number of defaults. [Here is a critique of her latest views.]

4. Campbell’s Critiques on Fiat Currency, Washington Gridlock, Business Journalism and Career Choices

Hundreds of articles are posted every week but their content is almost never challeged. Campbell does just that. He conveys his comments, concerns and criticisms in a concise conversation, concluding his critiques with either his concurrence or contrary point of view. He invariably ends each critique with a question or two for you to mull over until his next insightful and thought-provoking commentaries. Put your thinking cap on and give them a read. Words: 1722

5. Which Countries are Most Risky for Mining/Oil and Gas Companies? Here’s the List

The Behre Dolbear Group has recently published its annual comparative country risk assessment of twenty-five countries that host the global mining industry. [If you own, or are thinking of buying, stocks of companies in this sector print, then I suggest you give the Report your full attention and pass this commentary on to friends, acquaintances and colleagues interested in the Resource Sector, and to your Investment Advisor. Words: 437

6. Spanish Prostitutes Tell Wealthy Bankers: “No Loans, No Lays”! Is This an Early April Fool’s Day Spoof?

The largest association of luxury escorts in Spain – some costing as much as £250-an-hour – are reported to be boycotting their usual banker-clientele by refusing their erotic services until they start lending to the lower Spanish classes and SMEs (I assume this reference is to ‘small and medium business enterprises’). Sunday is April Fool’s Day so is this really happening or is it just an early spoof? Read on… Words: 497