Yesterday's Gold/Silver Prices - Sign of Times
Why Read: It is very important to think about financial market psychology, trading patterns, and risk in these volatile and uncertain times.
Featured Article: Could be any one of many articles this morning that discusses the immediate significant drop in the physical gold and silver prices yesterday following U.S. Federal Reserve Chairman Bernanke's Thursday morning report to the U.S. Congress.
Commentary: That the price of both physical gold and silver fell immediately on Mr. Bernanke's rather soft comments and failure to introduce a further round of quantitative easing:
says a great deal about the U.S. financial markets in circumstances where nothing really changed in the world except the timing of likely future actions by the U.S. Federal Reserve and other world Central Banks;
Emphasizes the extent to which the U.S. (and world) financial markets are focused on short-term trading profits and losses, and perhaps even more importantly, how willing the main stream media is to pick up on meaningless day/day changes in the financial markets. This in turn causes more market uncertainty and volatility than should result from daily announcements;
Emphasizes how 'instantly' and 'without much thought' the financial markets react to news. Speed of trade on 'new news' is a great advantage of algorithmic trading. Most media news is 'reporting' and not 'analysis'. Internet news is weighted toward analysis, but often that analysis is driven from biases and vested interest commentators. Only after the fact does 'good thinking' catch up with 'knee jerk' financial market reactions to news;
has to say a great deal across all market sectors with respect to the increased risk individual day traders face in these markets where they compete with high frequency trading algorithms that act in milliseconds as 'new news' hits the newswires and the internet; and,
Highlights how changed the financial markets are today from 'the way they were' only a few short years ago.
While it is fair to say that today current physical gold and silver pricing levels may prove to be higher or lower than they ought to be, it also has to be fair to say that yesterday's price drops for those two metals are 'short-term reactive' and hence meaningless in the overall scheme of things.
Drops 2.6%, Silver 4.1% with Bernanke 'Moderate'
Source: Resource Investor, Adrian Ash, June 7, 2012
Reading time: 4 minutes
For an example of this same phenomenon, but in the context of an immediate drop today in the price of Spanish treasury bills (and hence an immediate increase in market driven Spanish treasury bill yields), in the face of Fitch Credit Ratings downgrading Spanish Government debt by '3 notches' to BBB see:
Consider what the financial markets seem not to have known yesterday about Spanish Government credit risk that they now seem to have opened their eyes to this morning. The answer ought to be 'nothing', but seems not to be. This is simply a further example of 'don't think that just because someone wears an expensive suit that he/she is a good thinker'.