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The Irrationally Rising Gold Price?

Commodities / Gold and Silver 2010 Dec 04, 2010 - 05:26 AM GMT

By: Brian_Bloom

Commodities

Best Financial Markets Analysis ArticleI have made so many wrong calls in the past few months that I’m starting to wonder why.

Because I have for years had a policy of not using the charts for “trading” decisions it has not been impacting on either my ego or my bank balance that I have been wrong or that I have been wrong so often. What has been bothering me is what have I been missing?


Why are the (short term) chart signals not working anymore?

There are several potential  answers, one of which is that there are too many chartists around who can see the (potential) Head and Shoulders pattern on the gold price chart (for example).  To me this is too simplistic an answer.

I think that the answer may be a bit more esoteric.  I remember a lecture once given by a brilliant professor of human and organizational behaviour.  He was explaining the concept of “non directional behaviour”. The example he gave was of the man who tried unsuccessfully again and again and again and again to start his motorised lawn mower that, eventually, he kicked it in frustration. The kicking has no hope of starting the lawnmower’s engine but he does it anyway.

In this case I am not yet focusing on the “kicking” (deliberately fomenting a war in Korea, for example). I am focussing on the fact that society’s leaders are pulling on the money starter rope again and again and again and again in the forlorn hope that it will start the economic engine. It has been “mindless” behaviour. Why won’t the damned engine start? Pull the starter rope again. Why won’t it start? Pull the starter rope again. Why won’t it start? Pull the starter rope again.

My own mind-model tells me that the markets have been rising because the act of pulling the financial starter rope has flooded the engine with so much fuel that this fuel has to go somewhere; and that somewhere has been the financial markets.  If you are rich and you have money thrown at you, you consume a little bit more and you invest a lot more. If you are poor and there’s money around, you don’t get to see it except by way of hand-outs which eventually dry up.

It’s the nature of the investment that has been bothering me. Where should this  tidal wave of money be invested?

Philosophically, there is a huge difference between making an investment for short term gain and one that is long term oriented. It takes time for an economic driver to evolve and mature. Oak trees do not spring up overnight like dandelions in a field. Philosophically, the people who have been on the receiving end of this tidal wave of money have been oriented towards loss minimisation (investing in dandelions). They have no interest in investing large sums of money in the cultivation of oak trees.

So where will this cash tsunami go?

It will take the line of least resistance. It will go into (perceived) risk free investments: Government bonds, gold, commodities, highly liquid instruments such as currencies,  blue chip equities, cheap (not yet cheap enough) real estate.

But the one area it will not go will be where it is genuinely able to facilitate the cultivation of oak trees – because the agent/professional employee of the wealthy investor won’t be around to reap the benefits. His successors will. So what’s the point?

What our governments cannot or will not see is that Private Enterprise is incapable of taking socially beneficial investment decisions. What our governments cannot or will not see is that “next-generation” oak trees cannot be expected to pass the Return on Investment criteria for many years to come. Think of government as a mother bird. The rational mother bird will only kick its baby out of the nest when the baby is ready to fly. Until then the rational mother bird has parental responsibilities. It knows in its DNA that if it kicks its baby out of the nest too soon the baby will land up as blood and bones on the ground below. On the other hand, the rational mother bird will make damned sure that it kicks the baby out of the nest once it can fend for itself – because if it doesn’t the baby will become totally dependent on the nest and will never leave it of its own accord.

One problem with society nowadays is that we have become so “what’s in it for me?” oriented that we cannot see beyond the ends of our noses. For this reason, “privatising” the responsibility for infrastructure investment and/or maintenance is an oxymoron. But the problem is: What is the appropriate infrastructure?

Because our politicians and financial authorities have been so religiously distancing themselves from the coalface of reality, they typically have no idea. And because they want to retain their positions they don’t want to rock any boats by taking unpopular (in the short term) decisions

And so the money tsunami will continue and the markets will continue to rise – disconnected from underlying earnings and/or needs – until they collapse.

Trading in these markets, in my view, is a fool’s game. If you lose, you lose and if you win, you also lose.

Investing was, is and should be about facilitating value-add – but GENUINE value- add. And genuine value-add is about addressing needs as opposed to wants.

My previous novel, Beyond Neanderthal and my next novel (now 2/3 complete) both drill down deeply to determine society’s real needs. Our bedrock needs have nothing whatever to do with money. Our bedrock needs are to develop a new (non fossil fuel) baseline energy paradigm and to ensure a reliable source of potable water for everyone. These are the needs on which governments should be focussing – and in a SOCIALLY RESPONSIBLE manner.

Wisdom dictates that baseline energy resources and water resources should belong to everyone. Why? Because baseline energy is the bedrock on which all economic infrastructure is built and, without water, biological life would not exist.  To allow these precious resources to be “controlled” by private enterprise is to guarantee the demise of humanity. We now also need to grow up. We now need to move beyond our Neanderthal thought paradigms. Whether the gold price chart breaks up or down is an irrelevancy in the context of needs which are now becoming so compellingly urgent that our very survival is at stake.

By Brian Bloom

www.beyondneanderthal.com

Once in a while a book comes along that ‘nails’ the issues of our times. Brian Bloom has demonstrated an uncanny ability to predict world events, sometimes even before they are on the media radar. First he predicted the world financial crisis and its timing, then the increasing controversies regarding the causes of climate change. Next will be a dawning understanding that humanity must embrace radically new thought paradigms with regard to energy, or face extinction.

Via the medium of its lighthearted and entertaining storyline, Beyond Neanderthal highlights the common links between Christianity, Judaism, Islam, Hinduism and Taoism and draws attention to an alternative energy source known to the Ancients. How was this common knowledge lost? Have ego and testosterone befuddled our thought processes? The Muslim population is now approaching 1.6 billion across the planet. The clash of civilizations between Judeo-Christians and Muslims is heightening. Is there a peaceful way to diffuse this situation or will ego and testosterone get in the way of that too? Beyond Neanderthal makes the case for a possible way forward on both the energy and the clash of civilizations fronts.

Copies of Beyond Neanderthal may be ordered via www.beyondneanderthal.com or from Amazon

Copyright © 2010 Brian Bloom - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Brian Bloom Archive

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