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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Commons Confidential: Fearing the Wigan warrior

An electoral clash, select committee elections as speed dating, and Ed Miliband’s political convalescence.

Members of Labour’s disconsolate majority, sitting in tight knots in the tearoom as the MP with the best maths skills calculates who will survive and who will die, based on the latest bad poll, observe that Jeremy Corbyn has never been so loyal to the party leadership. The past 13 months, one told me, have been the Islington rebel’s longest spell without voting against Labour. The MP was contradicted by a colleague who argued that, in voting against Trident renewal, Corbyn had defied party policy. There is Labour chatter that an early general election would be a mercy killing if it put the party out of its misery and removed Corbyn next year. In 2020, it is judged, defeat will be inevitable.

The next London mayoral contest is scheduled for the same date as a 2020 election: 7 May. Sadiq Khan’s people whisper that when they mentioned the clash to ministers, they were assured it won’t happen. They are uncertain whether this indicates that the mayoral contest will be moved, or that there will be an early general election. Intriguing.

An unguarded retort from the peer Jim O’Neill seems to confirm that a dispute over the so-called Northern Powerhouse triggered his walkout from the Treasury last month. O’Neill, a fanboy of George Osborne and a former Goldman Sachs chief economist, gave no reason when he quit Theresa May’s government and resigned the Tory whip in the Lords. He joined the dots publicly when the Resolution Foundation’s director, Torsten Bell, queried the northern project. “Are you related to the PM?” shot back the Mancunian O’Neill. It’s the way he tells ’em.

Talk has quietened in Westminster Labour ranks of a formal challenge to Corbyn since this year’s attempt backfired, but the Tories fear Lisa Nandy, should the leader fall under a solar-powered ecotruck selling recycled organic knitwear.

The Wigan warrior is enjoying favourable reviews for her forensic examination of the troubled inquiry into historic child sex abuse. After Nandy put May on the spot, the Tory three-piece suit Alec Shelbrooke was overheard muttering: “I hope she never runs for leader.” Anna Soubry and Nicky Morgan, the Thelma and Louise of Tory opposition to Mayhem, were observed nodding in agreement.

Select committee elections are like speed dating. “Who are you?” inquired Labour’s Kevan Jones (Granite Central)of a stranger seeking his vote. She explained that she was Victoria Borwick, the Tory MP for Kensington, but that didn’t help. “This is the first time you’ve spoken to me,” Jones continued, “so the answer’s no.” The aloof Borwick lost, by the way.

Ed Miliband is joining Labour’s relaunched Tribune Group of MPs to continue his political convalescence. Next stop: the shadow cabinet?

Kevin Maguire is Associate Editor (Politics) on the Daily Mirror and author of our Commons Confidential column on the high politics and low life in Westminster. An award-winning journalist, he is in frequent demand on television and radio and co-authored a book on great parliamentary scandals. He was formerly Chief Reporter on the Guardian and Labour Correspondent on the Daily Telegraph.

This article first appeared in the 27 October 2016 issue of the New Statesman, American Rage