Technical Analysis Versus Value in Gold | Alasdair Macleod …

Technical Analysis Versus Value in Gold | Alasdair Macleod …


Technical Analysis Versus Value in Gold

By:

Alasdair Macleod

| Fri, May 16, 2014

SharePrintEmail

At the outset I should declare an interest. In the 1980s I was a member of
the UK’s Society of Technical Analysis and for a while I was the society’s
examiner and lecturer on Elliott Wave Theory. My proudest moment as a technician
was calling the 1987 crash the night before it happened and a new bull market
two months later in early December. Before anyone assumes I have a gift for
technical analysis, I hasten to add I have also made many wrong calls using
it, so to be so spectacularly right on that occasion was almost certainly down
to a large element of luck. I should also mention that the most successful
investors I have observed over 40 years are those who recognise value and disdain
charts altogether.

Technical analysts assume past prices are a valid basis for predicting what
investors will pay tomorrow. The Warren Buffetts of this world act differently:
they care not what others think and use their own judgement of value. This
means that value investors often buy when the trend is down and sell when the
trend is up, the opposite of technically-driven decisions. A bear market ends
when value investors overcome the trend.

Technical analysts go with the crowd and give any trend an added spin. This
explains the preoccupation with moving averages, bands, oscillators and momentum.
Speculators, who used to be independent thinkers, now depend heavily on technical
analysis. This is not to deny that many technicians make a reasonable living:
the key is to know when the trend ends, and the difficulty in that decision
perhaps explains why technical analysts are not on anyone’s rich list.

Value investors like Buffett rely on an assessment of the income that an
investment can generate, and the opportunity-cost of owning it. This may explain
his well-known views on gold which for all but a small coterie of central and
bullion banks does not generate any income. So where does gold, a sterile asset
in Buffett’s eyes stand in all this?

Value investors in gold who buy on falling prices are predominately Asian.
For Asians the value in gold comes from the continual debasement of national
currencies, a factor rarely considered by western investors who measure investment
returns in their home currency with no allowance for changes in purchasing
power.

The financial system discourages a more realistic approach, not even according
physical gold an investment status. Using technical analysis with the false
comfort of stop-losses leads to more profits for market-makers. Furthermore,
gold’s replacement as money by unstable national currencies makes economic
and investment calculation for anything other than the shortest of timescales
unreliable or even impossible. But then this point goes over the heads of the
trend-followers as well as the fundamental question of value.

Technical analysis is a tool for idle investors unwilling or unable to understand
true value. It dominates price formation in western markets and distorts investor
behaviour by exaggerating any natural bias towards trends. It is this band-wagon
effect that is the root of trend-following’s success, but also its ultimate
weakness. A better strategy is to make the effort to value gold properly and
then act accordingly.


Please enable JavaScript to view the comments powered by Disqus.

Author: Alasdair Macleod

Alasdair MacLeod
Contributing Author
GoldMoney.com

Alasdair Macleod runs FinanceAndEconomics.org,
a website dedicated to sound money and demystifying finance and economics.
Alasdair has a background as a stockbroker, banker and economist. He is a
Senior Fellow at the GoldMoney
Foundation
.

For more information, and to arrange interviews, please call Gwyn Garfield-Bennett
on: 44 (0) 1534 715411, or email [email protected]

GoldMoney is one of the world’s leading providers of physical gold, silver,
platinum and palladium for retail and corporate customers. Customers can trade
and store precious metal online easily and securely, 24 hours a day.

Historically gold has been an excellent way to preserve purchasing power over
long periods of time. For example, today it takes almost the same amount of
gold to buy a barrel of crude oil as it did 60 years ago which is in stark
contrast to the price of oil in terms of national currencies such as the US
dollar.

GoldMoney is regulated by the Jersey Financial Services Commission and complies
with Jersey’s anti-money laundering laws and regulations. GoldMoney has established
industry-leading governance policies and procedures to protect customers’ assets
with independent audit reporting every 3 months by two leading audit firms.

GoldMoney has its headquarters in Jersey and also has offices in London and
Hong Kong. It offers its customers storage facilities in Canada, Hong Kong,
Singapore, Switzerland and the UK provided by the leading non-bank vault operators
Brink’s, Via Mat, Malca-Amit, G4S and Rhenus Logistics.

Visit www.goldmoney.com.

Copyright © 2012-2014 GoldMoney.com

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

View original: 

Technical Analysis Versus Value in Gold | Alasdair Macleod …

See which stocks are being affected by Social Media

Share this post