People have been reading way too much into gold prices

Backlash against the doom-mongers.

The plummet in gold prices has been a big story over the last day or so, and today's dead cat bounce in the market has been accompanied by an equally inevitable backlash from economists and commenters. Apparently the doom-mongers have been reading far too much into the drop in prices, and it's time for a reality check. Here, for example, is Monument Securities' Stephen Lewis (my emphasis):

When a price slides as that of gold has in recent days it pays not to draw too firm a conclusion regarding the fundamental significance of the movement.  When the fundamentals change as, for example, when economic growth picks up or inflation subsides, the process is usually gradual.  To be sure, investors may not notice what is happening until a signal event reveals the truth, but more often than not the market response to changes in fundamental economic conditions is also gradual rather than precipitous.  There has been no striking event or statement in the past few days such as might give convincing grounds for investors to abandon gold in favour of growth-correlated assets.  Consequently, attempts to spin the gold price collapse as an indication that investors are piling in behind the view that prospects for global growth and for the US dollar have brightened are lacking in credibility.  More likely, gold's slide reflects factors internal to that market, amplified perhaps in the conditions of heightened market liquidity, and volatility, that central bank asset purchases have created.

And here's Lars Christensen with the same point in graph form:

The big story in the financial markets this week is the continued decline in commodity prices – particularly the drop in gold prices is getting a lot of attention.

The drop in commodity prices have led some people to speculate that this is an indication that the global economy is slowing. That may or may not be the case. However, as Scott Sumner like to remind us – we should never reason from a price change. 

We have to remember that the price of commodities can drop for two reasons – either demand for commodities declined (that would be an indication that the global economy is slowing) or because of a positive supply shock (that on the other hand would be good news for the global economy).

The good news graph…

And the bad news graph…

 

This is not the place to speculate about whether we are in the “bad news” or the “good news”, but global markets are nonetheless telling us that this is not the time to panic – global stock prices have been trending upward, while commodity prices have been declining.

The point, says the Guardian's Nils Prately, is that gold moves to its own tune, and it's tune is at a very slow rhythm:

should we really be surprised that a 10-year bull market could be over? Gold has always run on long cycles, but a decade is still a very long time.

 
Photograph: Getty Images
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Inside a shaken city: "I just want to be anywhere that’s not Manchester”

The morning after the bombing of the Manchester Arena has left the city's residents jumpy.

On Tuesday morning, the streets in Manchester city centre were eerily silent.

The commuter hub of Victoria Station - which backs onto the arena - was closed as police combed the area for clues, and despite Mayor Andy Burnham’s line of "business as usual", it looked like people were staying away.

Manchester Arena is the second largest indoor concert venue in Europe. With a capacity crowd of 18,000, on Monday night the venue was packed with young people from around the country - at least 22 of whom will never come home. At around 10.33pm, a suicide bomber detonated his device near the exit. Among the dead was an eight-year-old girl. Many more victims remain in hospital. 

Those Mancunians who were not alerted by the sirens woke to the news of their city's worst terrorist attack. Still, as the day went on, the city’s hubbub soon returned and, by lunchtime, there were shoppers and workers milling around Exchange Square and the town hall.

Tourists snapped images of the Albert Square building in the sunshine, and some even asked police for photographs like any other day.

But throughout the morning there were rumours and speculation about further incidents - the Arndale Centre was closed for a period after 11.40am while swathes of police descended, shutting off the main city centre thoroughfare of Market Street.

Corporation Street - closed off at Exchange Square - was at the centre of the city’s IRA blast. A postbox which survived the 1996 bombing stood in the foreground while officers stood guard, police tape fluttering around cordoned-off spaces.

It’s true that the streets of Manchester have known horror before, but not like this.

I spoke to students Beth and Melissa who were in the bustling centre when they saw people running from two different directions.

They vanished and ducked into River Island, when an alert came over the tannoy, and a staff member herded them through the back door onto the street.

“There were so many police stood outside the Arndale, it was so frightening,” Melissa told me.

“We thought it will be fine, it’ll be safe after last night. There were police everywhere walking in, and we felt like it would be fine.”

Beth said that they had planned a day of shopping, and weren’t put off by the attack.

“We heard about the arena this morning but we decided to come into the city, we were watching it all these morning, but you can’t let this stop you.”

They remembered the 1996 Arndale bombing, but added: “we were too young to really understand”.

And even now they’re older, they still did not really understand what had happened to the city.

“Theres nowhere to go, where’s safe? I just want to go home,” Melissa said. “I just want to be anywhere that’s not Manchester.”

Manchester has seen this sort of thing before - but so long ago that the stunned city dwellers are at a loss. In a city which feels under siege, no one is quite sure how anyone can keep us safe from an unknown threat

“We saw armed police on the streets - there were loads just then," Melissa said. "I trust them to keep us safe.”

But other observers were less comforted by the sign of firearms.

Ben, who I encountered standing outside an office block on Corporation Street watching the police, was not too forthcoming, except to say “They don’t know what they’re looking for, do they?” as I passed.

The spirit of the city is often invoked, and ahead of a vigil tonight in Albert Square, there will be solidarity and strength from the capital of the North.

But the community values which Mancunians hold dear are shaken to the core by what has happened here.

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