Two Models for Pricing Gold
A few weeks or a month ago, TMFBullnBear, in the comments to one of his great posts on gold, posted a link to a blog post that a commenter on his post on Economist.com had brought to his attention. That blog post is a 2010 article by Eddy Elfenbein, who writes Crossing Wall Street. The blog and the post and the model blew me away, reading it as I did, much farther into the trend than it was written. You can find it here.
I filed that away in my "classic posts" mental vault.
Then this week Peter Brandt, who is a long-time commodities trader (among other things) did a hugely positive review of the 2010 model post, which you can find here.
That review was prompted by this model update that Eddy posted last week, which you can find here, and which is STUNNING.
I'm just the bearer of models. But I suggest all gold speculators and investors, as well as haters, pay some serious attention to this model, to the Dominant Fundamental Theory idea that Brandt articulates, and to the model that Ray Dalio uses, as described by Brandt. (Dalio, in case you don't know, is the founder and head of what I believe is the largest hedge fund in the world.)
Anybody interested in what the Bernanke's statement tomorrow might or might not do for real interest rates? Anyone know any single institution with more influence on that vector than the Fed (this second question in this paragraph is a serious one)? Other than those questions, I'll let you draw your own conclusions.
I also love the part in the Brandt piece about how you know someone is full of sh!t, and also this quote from the Brandt piece:
"As a trader — and be honest about this — do you chase after all sorts of fundamental news in order to either understand the markets or justify your positions. If you do, you are wasting your time. If this describes you, please know that your constant attempt to “put the pieces together” is wasted effort. Do yourself a favor and find a different hobby."
That's another quote written by a trader (like my previous Reformed Broker post), but that I think is highly applicable as well to those, like me, who style themselves long-term investors.