Gold

[superfrank]

How can you be so sure?

HFT accounts for something like 70% of trades in the equity markets, so it's a potent force...

Jeff

It's a just a scalping/market testing mechanism and it works in both directions. It can't sustain any market move.

Investment banks are another matter - JP Morgan's silver shorting was massive and they succeeded in engineering a fall in the price eventually - but only after taking very large risks and getting their mates at the COMEX to increase the margin requirements many times.

Stop believing mainstream media cr@p!

[Iron]

It's a just a scalping/market testing mechanism and it works in both directions. It can't sustain any market move.

Possibly - I'm not convinced. Some trades may be opened and closed within milliseconds, but it is not possible that some HFT algerithms are designed to follow longer-term trends?

Stop believing mainstream media cr@p!

That reminds me of something Dr Nouriel Roubini wrote in a heated Twitter debate this evening: 'Keynes was 100% right: 7 of 9 academic/econometric studies of fiscal stimulus prove it worked. Hacks w/o PhD shut up'.

Jeff

[superfrank]

Hacks w/o PhD shut up.

Did he really say that?

I hate educational snobs.

[Iron]

Yep!

I chipped in and asked if he advises undergraduates to suspend their critical faculties and believe everything a Phd says...

Jeff

Did he really say that?

I hate educational snobs.

[superfrank]

but it is not possible that some HFT algorithms are designed to follow longer-term trends?

What has high frequency trading got to do with long term trends?! Automated trading exists to buy/sell on breaks of moving averages etc., but that's not HFT - you and I could code that with standard trading tools available to anyone. HFT's edge is all about speed - they even spend fortunes on locating their servers as close as possible to the exchange to squeeze out an extra millisecond of advantage.

[Iron]

What has high frequency trading got to do with long term trends?!

On reflection, you're right.

However, HFT can still contribute to long-term trends IMHO.

Let's use a Betfair analogy (even though HFT isn't possible on Betfair - except perhaps for Betfair themselves and a few select customers - but I digress!).

The price has drifted from 3 to 3.45. The HFT program thinks 'Aha! The price has been rising, so I'll offer a lay and go for a 1 tick scalp'.

Joe Trader, seeing the build up of money, senses the price is about to rise, and decides to 'jump the queue', forcing the price 1 tick higher.

The HFT program now thinks 'Right, I'd better offer some money at 3.5 and hope I get matched', and so on.

Trends beget trends for reasons of market psychology, and short term trends in one direction can result ultimately in a longer term trend in that direction.

Jeff

[superfrank]

Betfair horse racing is not really comparable because most are not willing to oppose those sharp moves with 1min left to go before the contract closes.

It's a tactic on Betfair that seems to work - continually pushing the price in a direction knowing that, on average, the trend will continue (or not reverse significantly) more often than not.

How many times do you see a massively drifting fav romp home? - quite often in my experience. The price discovery mechanism only works on Betfair when there is sufficient non-trader money willing to oppose - in smaller races with little real money the trading tactic overpowers any real money.

In finance there is always a bigger fish and time to play the long game.

[Iron]

Nice tweet from Nouriel Roubini:

If double dip & financial crisis buy Spam & short Gold: you can eat Spam but you cant use $1K gold coins, let alone bars, to barter 4 bread



Jeff

[superfrank]

Nice tweet from Nouriel Roubini:

If double dip & financial crisis buy Spam & short Gold: you can eat Spam but you cant use $1K gold coins, let alone bars, to barter 4 bread



Jeff

that's why you need silver! 1oz (spot) still costs less than £25 or a decent bottle of wine. a few years from now that's gonna seem laughable.



I've got a friend who, when he goes to a dinner party, no longer takes wine but instead gives his hosts a silver eagle!

[Iron]

Interesting weekly chart for gold.

According to trend following principles, it looks like a good buy.

I'm always a bit wary of markets that have been on steriods for a few bars. I can't help wonder if the market is massively oversold and a correction is due. But as no-one knows when the bubble will burst, I'd probably go long, but with with a tight stop.

What do you guys think?

Jeff

[superfrank]

Fundamentally it's still massively undervalued!

[Iron]

Fundamentals sundamentals!

Joking aside, isn't that a matter of opinion? Don't some experts advocate buying gold, whereas others see a bubble about to burst?

I think the big risk with gold is that its upward trajectory is largely self-reinforcing. Unlike copper, gold isn't much use for making coins, and unlike pork bellies, you can't eat it. You buy gold because you believe the market will continue wanting it long enough for you to make a profit. But if enough people think that it's lost its allure, there could be a downward stampede as everyone rushes to sell before the market moves too far away from them.

Jeff

Fundamentally it's still massively undervalued!

[superfrank]

Gold is real money and has been a store of wealth for the last 6000 years - what's so special about now?

Fiat currencies are dying, any fool can see that. They are being printed into oblivion and it's a race to the bottom.

http://silver-and-gold-prices.goldprice.org/
"Gold's primary trend is up, targeting at least $3,130.00; silver's primary is up targeting 16:1 gold/silver ratio or $195.66; stocks' primary trend is down, targeting Dow under 2,900 and worth only one ounce of gold; US$ or US$-denominated assets, primary trend down; real estate in a bubble, primary trend way down".

There must come a day when a financial system that relies on debt increasing exponentially to survive will fail - just like with every other Ponzi scheme.

I expect we're a few years away from it but, unless a banking sea change occurs, it WILL happen.

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved".
- Ludwig Von Mises, 1949.

"Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves".
- Norm Franz

[Iron]

According to Wikipedia, 50% of gold goes into jewellery, 10% is used by industry, and the rest is invested.

Let's say there's a global economic downturn. Isn't it quite possible that it will lower the price of gold, as fewer people are able to afford expensive jewellery?

As for the price extrapolations, I regard them as hocus pocus. No-one knows in advance when a trend will end; the market is too chaotic.

Jeff

[superfrank]

The Chinese are buying the dips (and they're not selling any).

If you were China what would you rather hold to preserve national wealth... something tried and tested over 6000 years, or IOUs from a bankrupt country in a currency being diluted and backed by nothing?