I've been recently wrong about gold. It’s gone down and stayed down. I've traded it a couple of times, I've won and I've lost, and one thing has become very apparent.
Gold is a fantastic bellwether of what is going to happen and is therefore a good signal for your general investments.
Since the central banks and politicians seized control of markets after the credit crunch, the markets have lost a great deal of their previous freedom and with it the markets appear to have attracted a new level of corruption.
Top level insider trading on economic data and policy changes has become rampant. Markets now move days before the important news is released. In fact, you can predict the news by watching the markets.
This is hardly surprising, because politicians are hardly the most tight-lipped of people and in the end the regulators are not going to bust central bankers or top politicians for letting the insider information flow.
This might sound a bit paranoid but you can apply your own tests going forward and see if the thesis shapes up. It happens often enough to make you wonder why nothing is said.
Next time the market moves and the media is flapping about for explanations, leave it a couple of days for the next set of important announcements to be made or economic figures to be released and see if the market moves of recent days match it.
You will likely find that it does. You may also note the day of release it is not very volatile or even moves in the opposite direction you would expect, both indications the market knew before you did.
It could be the careful polling and modeling of the analysts of Wall Street, but more likely it is the loose lips of those in the know than a sudden bout of excel brilliance that gets the market in the know early. When you think of the numbers of people in the process of macro-economic data or policy discussions, it really isn't that surprising.
Only surprises move the markets, so markets that move surprisingly are parts of the market getting news early.
A simple example of this was gold before the balloon went up in Ukraine. On December 31 gold was languishing at approximately $1,200 an ounce, only to begin a strong rally, and by February 25 it was $1,344. Within a few days of February 28, when Putin put his troops into the Crimea, gold was on its way down as all went to plan for the Russians.
From a high of $1,390 an ounce that gold had reached, it slipped back down to below $1,250.
Gold spiked again later on fears of a full scale invasion of Ukraine yet at the very peak of the tension, gold was saying “no invasion” as it failed to sustain its rally and fell back towards $1,200.
You don't have to be a conspiracy theorist to know that many hundreds, perhaps thousands of Russians, and for that matter global politicians and their intelligence communities knew what was on the cards. It is therefore inconceivable that this information didn't flow far enough for it to be driving the price of gold over these months.
It is not impossible that gold's performance was a coincidence, but in the end it certainly made me look like a genius in my discussions with people about the full scale invasion of Ukraine, which I suggested wouldn't happen, when they were sure it was on the very edge of already being underway in earnest.
You don't have to be a fan of Kurt Godel to know that no model is foolproof, but gold as a signal for trouble ahead in geopolitical news is a strong one.
This is especially useful today when it seems not a week passes without a new global crisis breaking out.
The biggest potential flash point is currently Hong Kong. The consequences of the democratic protests catching hold, for good or ill, on the mainland cannot be underestimated. It will be hard to know in the coming days or weeks what is really going on there. As we have seen in the media with conflicts like the Ukraine, it is becoming all but impossible to find a credible reliable news-source to reply on. The partisan reporting of facts in such situations has utterly overwhelmed clarity and the truth. As such, we are left guessing what is happening on the ground as the propaganda machines of global politics fog up the reality.
However, a hard indicator of the seriousness of the situation is the price of gold. Gold is where you hedge your wealth when you know you need to.
Make no mistake, if China starts to slide into chaos, the gold price will go wild. As such, I will be watching the price of gold very carefully during the Hong Kong crisis because if gold starts to fly it will be a very ominous signal indeed.
It won't be the only signal, of course. Treasurys will surge and the yen will likely strengthen, stocks will stutter. However, gold will take the lead, it will be the lead indicator as the real insiders will be piling into gold if down below trouble is bubbling up.
Alternately, if gold doesn't rally and all the news outlets are screaming at the top of their lungs that China is on the edge of meltdown, I will ignore them.
What is really going on will be in the gold price first.
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Clem Chambers is the CEO of leading private investors Web site ADVFN.com. He is also author of The Game in Wall Street and Letters to my Broker.
