My Two Cents - "Pure Media Bias on Gold"
08/24/2011
Bloomberg News has been cheered in recent months for several 'movements' in quasi-honest reporting, most notably a recent article on the $1.2 Trillion (at a bare minimum) that went to the global aristocracy from the US fed at the height of the 2008 financial crisis. The very fact that this slice of men without a country profited so insanely from the crisis should give most people a pretty good idea of how contrived the crisis was to begin with.
Bloomberg was also credited with filing various FOIA requests in an effort to force the US fed to disclose recipients of various emergency loans. These minor victories for the truth may have gone a long way towards giving this news outlet a clean bill of health in people's minds and an A+ on the objectivity stress test. Nothing could be further from the truth.
On a day when gold has dropped over $100 or almost 5.5%, investors went looking for the reasons why the correction has been so severe. Certainly the market was due for a correction; it had come a long way in a very short time for some very good fundamental reasons. However, even the strongest bull market is not without pullbacks and this one was due. That is not, however, what caused the panic selling that has taken place. The overreaction was caused by another series of margin hikes, this time in the Chinese gold markets. Margins were raised to 12% starting this Friday. Rewind a few months and remember what CME did to silver with a series of margin hikes. The obvious fear is that margin hike fever will again spread back to US markets and CME will get back into the act - which they did - effective at close of business on 8/25/11.
However, what investors found on Bloomberg was an assortment of invectives against gold, how 'stability' in the global financial system – aka we haven't had a crisis yet this week – and a strong US manufacturing report all contributed to the rout. Let's take a look at some quotes from today's 'wall of shame' article, which can be found by clicking the link. Bloomberg has a habit of updating and revising articles and as such I have saved the original version in PDF format for later reference if necessary.
"This is liquidation from a crowded trade," (name redacted), a senior market strategist at MF Global Holdings Ltd. in Chicago, said in a telephone interview. "In the short run, there's more optimism and that doesn't bode well for gold. Investors have been using gold more as a fear barometer than a proxy for inflation."
Obviously senior market strategists aren't required to know even the most basic workings of the market that they claim to have expert knowledge of. Certainly the latter half of this statement has some truth to it, but why no mention of the margin hikes? If this guy did mention it and it wasn't printed, he's got a good reason to be hopping mad about it, because the omission makes him look incredibly incompetent.
"This is just pure panic selling" (name redacted), the head dealer at Integrated Brokerage Services in Chicago, said in a telephone interview. Before today, gold's 14-day relative strength had been above 70 since Aug. 8, a signal to technical traders that prices are poised to fall.
Again, there is a nugget of truth here; there has been near panic selling, but again, no mention of the margin hikes. The comments allude to the fact that the decline is based on technical factors alone.
"Gold got pushed up on the idea that Bernanke will announce further quantitative easing," (name redacted), a commodity market specialist at Scotia Capital, said in a telephone interview. "Now people are not so sure whether that will happen and that is creating disappointment in the gold market."
Funny, Big Ben slammed the door several times on the idea of further overt QE, albeit leaving it open on other occasions, yet gold has rallied anyway despite the general inconsistency of his comments and an unclear picture of how much more the central bank is willing to bury the dollar in the short term. The Jackson Hole meeting this week might provide some clarity in that regard, but odds are probably even that we'll know about as much then about monetization plans moving forward as we know now.
To Bloomberg's minor credit, there was one 'contrarian' viewpoint printed at the very end of the article, but long after the central point of the piece had been well established:
The decline may be a buying opportunity to some investors, said (name redacted), who manages $200 million at TEAM Financial Management in Harrisburg, Pennsylvania. "A lot of traders and investors who are long-term bullish on gold sold out hoping for a correction because of how much it went up," said (name redacted). "The drivers remain intact. The toughest thing to do is stay invested during the various parabolas and sit through the corrections."
Again, through the entire piece, there was not a single mention of the Shanghai Gold Market's margin hikes, which will take effect this Friday. I guess it is possible that Bloomberg journalists might not know about this supposed subtlety in the gold market, but they talked to a minimum of 4 market 'experts' and I simply refuse to believe that none of these folks knew about this. It would appear that this is nothing more than another thinly veiled attempt to shuck and jive the public into thinking that gold is not a viable alternative to eroding paper currencies and a safe haven from foolish monetary and fiscal policies that span the globe.
Getting away from the media bias for a second, there are some obvious reasons why the paper establishment would like to knock down gold prices. First, the establishment has been playing a losing game for a decade now, putting up battles at critical junctures until market pressures forced prices higher. This has been going on for more than ten years now. The argument regarding speculators is really getting tired and worn out. It is very likely that another round of public easing is about to take place (the covert easing never stopped by the way) and the central banks of the world would certainly prefer that gold launch from $1,750 as opposed to $1,950, for example. And finally, central banks, hedge funds, and all those people who bash gold love the actual metal and bought more of it in the first half of this year than they bought during all of 2010. They'd like more and if they can use paper charades to knock down the price of physical so they can accumulate, then that is exactly what they will do. The Chinese would certainly like more ounces for their flagging dollar reserves that they desperately want no part of.
So we have folks with means, motive, and opportunity. You might think the news is all bad. It isn't. I talk to many people who complain that gold has gotten too expensive, which has hampered their ability to accumulate. Guess what? It just went on sale. What we don't know is what the final discount will be or how long the sale will last. You again have an opportunity to trade in the ultimate wasting asset – the US dollar – for real money and get more ounces for your paper. Not a single fundamental has changed. So there hasn't been a crisis in Europe this week. So what? Nothing has been fixed there – or here. So, Bloomberg and its shenanigans notwithstanding, today's action is positive for buyers of physical precious metals and adds another chapter what I dubbed back in 2008 as the opportunity of a lifetime.
Until Next Time,
Graham Mehl is a pseudonym. He is not an ‘insider’. He is required to use a pseudonym by the policies of his firm when releasing written work for public consumption. Although not an insider, he is astonishingly bright, having received an MBA with highest honors from the Wharton Business School at the University of Pennsylvania. He has also worked as an analyst for hedge funds and one G7 level central bank.
Andy Sutton is a research and freelance Economist. He received international honors for his work in economics at the graduate level and currently teaches high school business. Among his current research work is identifying the line in the sand where economies crumble due to extraneous debt through the use of economic modelling. His focus is also educating young people about the science of Economics using an evidence-based approach.