Sunday, May 1, 2011

The AUD Gold 'Pascoe Indicator'

Michael Pascoe is an Australian financial journalist. Well known and respected with more than 30 years reporting in Newspapers, on TV, Radio and Online.

Something he has made obvious over the last several years is that he's a Gold hater!

All the way up the bull market Pascoe has continued to berate and ridicule Gold and it's investors (or 'Gold bugs', a term he uses to paint us in a negative light).

Of course anyone following his articles might note that many have come around low points in the AUD price of Gold, so much so that his articles could almost be seen as a contrarian indicator (e.g. time to buy AUD Gold when he posts a negative Gold article), see the chart below:

Here is a list of the 5 points labeled on the chart and the article written by Pascoe at the time.

1. On September 27th, 2007, Pascoe had the following to say about Gold:
Gold bugs losing their bite

Of course, you can still find bugs who think the rally above US$1000 an ounce is only a stock market away – but other commentators don't think there's any meaningful correlation between the metal's price and wobbly equity markets.

The more reliable truth is that gold is really just another commodity, albeit one with a rich history. The good news is that demand for gold continues to rise and production doesn't keep up – but there's still a big overhang, thanks mainly to European central banks that still want to sell down their holdings. Super Living
2. This was followed by the below, 2 years later on September 14th, 2009:
Gold drops 25%!

Gold did finish in New York at a record high of $US1006.50 an ounce – which is all very entertaining if you happen to be American or have most of your assets in US dollars or a currency more-or-less pegged to the greenback.

But if your assets are Australian dollar denominated, it doesn't really mean much at all. Our overwhelmingly American-centric media tends to ignore that.

As gold sceptics know, the yellow stuff occasionally has a day in the sun when there's fear and loathing in the financial system or when the herd decides to make gold the next candidate for a speculative bubble, but its price is mainly a reflex currency play for the US dollar. The Age
3. Pascoe was still talking Gold down 10 months later on July 28th, 2010:
Time for gold bulls to feel a little fear

Nearly three years of fear and loathing have been very kind to gold bugs as worry about financial crises helped drive investors into the alleged safety of the yellow metal, whereupon the gold price rose further because the gold price was rising – the momentum players chiming in.

But there are signs that the tide of fear might be about to turn – an event that would be precipitous for the gold price and all who ride on her. It could be the gold bulls' turn to feel fear as pain instead of pleasure. The Age
 4. New year, another negative Gold articlefrom Pascoe. March 18th, 2011:
Buy iodine, sell gold and forget the Aussie

With all the present volatility in the markets, what’s perhaps most surprising is how very little gold has done. If I was a gold bug – and I’m clearly not – that might be a worry. Of course, the hard-core gold believers think life as we know it is coming to an end anyway and therefore are unshakeable in their strange faith.

I have been wrong about the gold price for the past several years [At least he's honest! BB], but that still remains more a matter of timing than fundamentals. The major leg of the gold rally was based on a reasonable reason – the need for those with US dollars to get out of them as the American economy and the greenback plunged.

Since that first leg, gold has risen primarily because gold had risen. The momentum trade kicked in, the exchange traded funds (ETFs) took off to capitalise on that and the great gold bubble bubbled on. There’s an entire industry devoted to justifying the rise – at any one time you can find people who will tell you that gold is a great hedge against inflation, a great hedge against deflation, a safe haven and a cure for baldness. Well, maybe not a safe haven. The Age
5. Only a month later and Pascoe is again laying in the boot. April 27th, 2011:
Rich rust beats dull old gold

Don't know why there's been so much excitement over the price of gold in US dollars - it's even better in Vietnamese Dong or Ugandan Shillings. The Australian dollar gold price though is terribly boring, but don't try telling gold bugs that they would have been much better off falling in love with rust than the yellow metal.

The uninvolved might be under the impression that the price of gold has been soaring to record highs lately, some using that as an excuse to bid up the price of shares in Australian gold miners in the hope that higher gold price might flow through to them.

Wrong. Gold actually has been doing nothing much for the best part of a year and remains well below its record high. That's gold in Australian dollars, of course – the only measurement that means something if you're wealth is in Australian dollars to start with. SMH
The above examples are just some of Pascoe's articles that highlight his negative outlook for Gold. There are others that can be found with a Google search, many of those also in dips or at lows as Gold in AUD continues to inch along it's long term trend line (marked on the chart above).
 
Pascoe is right in his latest article though, Gold in AUD has been boring for sometime, but one can't help but wonder whether the overvalued (in my opinion) AUD will correct back below parity against the USD at some stage in the near future. A move like this could give Gold a quick 10%+ boost in price and take us to new highs, surpassing the last high set 2 years ago in February 2009.
 
With any luck Silver's recent rise might also catch Pascoe's eye so he can start commenting negatively on this metal at it's lows as well. Keep some dry powder for that purchase point just in case!


BB.

 
Disclosure: Positions held in Gold. Not investment advice. Do your own research.


Thanks goes to user SaturnV on the Hot Copper forums (suspect registration required to view) for this posts inspiration.

4 comments:

  1. Dear Mr Pascoe,

    re Article in SMH on April 27, 2011:

    1. Good investments should be boring - it leads to fewer emotional errors.
    2. All Ords has done nothing since April 2006.
    3. Since April 2006 gold has appreciated (in $Au) 84% - 13% pa.
    4. Since April 2006 BHP has appreciated 53% - 8.8% pa.

    Good journalism requires careful fact checking. Shoddy journalism requires sensational myopia.
    Guess which I think yours might be.

    I'm no gold bug, just a wise investor.

    ReplyDelete
  2. ^ Well said!

    I don't know how well Mr Pascoe knows other asset classes but you'd hope he's at least slightly better informed.

    Otherwise, 30 years of bad financial advice for Australians.

    The inevitable correction in AUD - which will be whenever the boom finishes or the world finds another developed country with half decent interest rates - as BB said will mean a lot of gold bugs will be happy.

    Well, happier... holidays to Bali will be more expensive.

    C.

    ReplyDelete
  3. Pascoe was right, gold is on the verge of an historic correction, maybe a crash.

    ReplyDelete
  4. The price of Gold is still higher now than it was when this article was written...

    ReplyDelete