ROSS NORMAN – Gold and the power of magic
As it's nearly the weekend let me share with you something which is quite personal … and a bit weird ..
In having been quoted in the media about gold for about 40 years now I have pretty well never (idiomatic ?) read a line where I have been quoted, nor watched a video of myself. Don't get me wrong, this is no false modesty.
I have never told anyone this before, but I can remember as a child being being profoundly touched by that scene in Peter Pan when he is learning to fly and, as he realises it, he starts to fail. Hubris if you like. Almost as if you have to maintain belief or faith if you want to preserve the magic of the moment. And yes, I have been lucky. Just don't look down. It follows that I have never been any good at celebrating victories.
Taking a sharp left now … I have been reading Iain McGilchrist's epic book called “The Master and his Emissary” which, to badly summarise it, suggests we live in an exceptionally left-brained world dominated by rules, facts, and science which is plain hard on the individual. Whilst it is associated with periods of great innovation such as the enlightenment which gave us many of the great inventions – it is also a period of the greatest number of wars and a pervading sense of alienation … for those wondering about gold, chill out, relax, we'll get there … come with me. In short, we have lost the magic and the power of imagination.
Now of the all arguments I have put forwards about the gold price and its direction – this might come across as my weakest. Anyway.
In seeking to understand why gold prices have nearly doubled in 18 months … it is my contention that the answer is simply not in the data. In this period we have seen a very modest gain in the ETF position (up only about 120 tonnes net), a modest gain in the net speculative position, reported central bank demand is elevated but very clearly slipping – in aggregate, total net demand is up modestly (Q4 2023 @ 1144 tonnes Vs Q2 2025 @ 1308 tonnes for the quarter) … no smoking gun. Worse still, gold's traditional drivers are unreliable. Yes, the dollar weakened over that period by 7.7% but its correlation co-efficiency has swing between +1 and -1. Ditto treasury yields. Ditto the VIX or fear index. The Global Economic Uncertainty Index ? … yes, maybe. To misquote Shakespeare, it is not in the stars to hold our destiny.
Coming to the point – market analysts are taught to approach the market with an eye on the empirical, emotion or bias is your enemy and the data should speak for itself. In the absence of which … well … errr ….bluff – which is where we are now. Sorry.
In the early stages of WW2 the analysts or code-breakers at Bletchley Park – before they had captured the Enigma and Ultra machines from the axis forces would listen to morse code from the opposition where the words were still scrambled. They discovered they could infer quite alot of information from the non-verbal signals (my words) and derived quite a lot of useful military intelligence. They essentially were pattern-matching-monkeys who realised that communications had a cadence and the longer they listened, the better they became at it – and this was verifiable from the outcomes of operations they prompted or initiated. A left-brained person would understand precisely nothing.
Long and short, in the absence of quality data, if you want to understand gold you need to 'feel' the market rather than 'think' it … which is anathema to almost everyone who works in the sector. Yes, I can imagine the ridicule in being live on Bloomberg TV and saying “well, feels like …”
If … and its a big “if”… I am right … then what am a I suggesting ? Really significant Chinese leveraged speculative positions coupled with 'unreported' central bank buying is the only clear explanation. There you have it.
Forgive me, but over the last 24 years I done quite well in the LBMA's annual gold price forecast – this year I shall be second for the third consecutive year and sorry - but I am still very much at the top of the table. None of my efforts have been derived from running a macro on the gold components and cranking the handle – that would be antediluvian in my view (… look it up) … but a balance between thinking and feeling … consequently I always do best when the market is on the turn.
Yes, this has been a strange article … maybe the sun has got to my head.
I'll leave the final word to Peter Pan … “all the world is made up of faith, and trust and pixie dust”
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Ross Norman
CEO
Metals Daily Ltd
www.MetalsDaily.com
ross@metalsdaily.com