If You Understand This, Gold Prices Could Soar
There are hundreds of analysts dissecting the gold market almost daily but they are all overlooking what could be the most important factor—human nature. This essay looks at gold prices from the last few years with this important element factored in and concludes that the mining bull has a long way to run yet.
In the opening episode of the hit TV series Billions, the maverick fund manager/billionaire so brilliantly portrayed by actor Damian Lewis is told by his secretary that an associate is trying to reach him with a tip on a gold play. “Get rid of him,” says Lewis, suggesting to viewers around the world that even a top trader with an open mind will still not have anything to do with the gold pits.
The question, therefore, begs to be asked: how did a yellow metal with a 6,000-year history of being the most popular currency on the planet end up being so despised in the modern era?
(Actually that date could be much too conservative. Zulu legends tell of gold mines lost to history at the dawn of civilization; Genesis 2:11 specifically talks about the importance of a city being situated near gold; and deep mining shafts in South Africa have been dated to at least 60,000 years ago. [Source: “The Lust For Gold,” Viewzone, last accessed May 8, 2016.])
The answer I submit for your mental perusal is simple: human nature. It’s that part of our DNA that makes us react to events in strange and almost unpredictable ways.
The Trump Phenomenon Explained Via…Human Nature?
The second week of May, Scott Adams, creator of the Dilbert cartoon, did an op-ed that, to put it mildly, raised eyebrows around the world. He not only predicted that Trump would win this coming November, but he also specifically credited his prediction to human nature, naming six specific aspects of the human condition that he felt would favor the dark horse:
“Trump knows people are basically irrational… People are not wired to be rational. Our brains simply evolved to keep us alive. Brains did not evolve to give us truth. Brains merely give us movies in our minds that keeps [sic] us sane and motivated. But none of it is rational or true, except maybe sometimes by coincidence.
“…Knowing that people are irrational, Trump aims to appeal on an emotional level… Trump says whatever gets him the result he wants. He understands humans as 90-percent irrational and acts accordingly.
“…By running on emotion, facts don’t matter… There are plenty of important facts Trump does not know. But the reason he doesn’t know those facts is—in part—because he knows facts don’t matter. They never have and they never will. So he ignores them.
“…If facts don’t matter, you can’t really be ‘wrong.’… If you understand persuasion, Trump is pitch-perfect most of the time. He ignores unnecessary rational thought and objective data and incessantly hammers on what matters (emotions).
“…With fewer facts in play, it’s easier to bend reality. Steve Jobs famously aimed to create ‘reality distortion fields’ to meet his needs and achieve his ends. Trump employs similar techniques, and apparently can be similarly thin-skinned when his ‘reality’ is challenged. The Master Persuader will warp reality until he gets what he wants…[Trump is] ‘halfway done’ already.
“…To bend reality, Trump is a master of identity politics—and identity is the strongest persuader… The best Trump linguistic kill shots have the following qualities: 1. Fresh word that is not generally used in politics; 2. Relates to the physicality of the subject (so you are always reminded).” (Source: “‘Dilbert’ Creator’s 6 Reasons Why Trump Will “Win In A Landslide” In November,” ZeroHedge, May 8, 2016.)
Human Nature and Gold
In a similar vein, can human nature be used to explained the recent distaste for the yellow metal?
I suggest it can:
* People innately resist change and prefer the status quo.
Since gold has been in a deep and protracted bear market since 2011—almost a lifetime to a professional trader, who ponders the world in nanoseconds and has the attention span of a hummingbird—there is a tendency to consider that this is how things are meant to be: strong equities, a strong dollar, and weak gold prices. Anything that contradicts that premise becomes uncomfortable and is therefore to be avoided.
* People innately resist any explanation of a current situation or predicament that makes them look foolish, incompetent, or in error.
I have in previous essays commented on this topic, but I want to revisit it. During the gold bear that started in 2011 (and, in my view, ended in 2015), the strongest gold bears often turned out to be…former gold bulls!
How did that happen?
Simple. Experts who had built their entire careers on their skill in the gold market suddenly found themselves to have been not just slightly incorrect, but catastrophically wrong. Rather than exploring the reasons for the bad call, a great many suddenly changed course and championed the cause of the gold bears, citing technical charts to show how gold’s very future was in doubt, and why money could be better invested elsewhere.
The preferred path, I suggest, would have been to explore how data, which was perfectly valid and correct on a Monday, could be completely invalid and wrong on Tuesday? Had any of these gold writers done a proper investigation, they would have found—as I did—that blunt-force, technically illegal short sales of paper gold were being used to smash the price to known technical levels, thereby triggering a cascade of new selling as stops were hit to terrorize the longs. In other words—as was recently admitted as part of a plea bargain by Deutsche Bank—the gold bull up to 2011 was real, but the gold bear after 2011 was a fabrication and a charade.
* People innately prefer to follow those they consider leaders—the “alphas” if you like—even if such action leads them directly off a cliff.
I suggest it is no coincidence that, over the last few decades, leading politicians and statesmen have time and again elucidated for the masses the horrors of owning gold (“barbarous relic,” “waste of space,” etc.) while simultaneously backing their words with bizarre actions (the U.K.’s divestiture of half its gold holdings at $250.00/ounce in 1999; Canada’s divestiture of all its gold in 2016).
And the BEST-KEPT SECRET of Human Nature Is…
Arguably, the best-kept secret of human nature is that, for those with the will and the means, it is remarkably easy to manipulate and shape. In other words, no matter how formidable our individual wills, it is intrinsic to human nature, to our collective gestalt, that attitudes and predilections we believe are self-created may actually be someone else’s doing, or result from third-party influence.
In 2014, no less a source than The Guardian shocked readers with the revelation that, as an experiment, Facebook “for one week in January 2012, deliberately made about 155,000 people sad, just to see if it could.” (Source: “Facebook deliberately made Facebook sad. This ought to be the final straw,” The Guardian, June 30, 2014.)
In the incident mentioned, Facebook used relatively simple techniques, such as deliberately withholding all “positive stories” from its newsfeed, forcing members to digest a steady diet of unrelenting bad news.
But compared to the “persuasion science” that is out there right now, this was a mere drop in the bucket. The late Canadian media guru Marshall McLuhan, a professor at the University of Toronto, showed his students time and again how advertising of all stripes (whether visual, audio, or a combination) could be engineered to shape preferences and, ultimately, an entire culture.
For an example, see McLuhan’s book published in 1951, The Mechanical Bride, superbly deconstructed in the Wikipedia entry of the same name. (Source: “The Mechanical Bride,” Wikipedia, last accessed May 9, 2016.)
Consider also that the media and advertising sectors have had some 65 years since that work was released to hone and perfect their insidious techniques. They have not been idle. Modern “persuasion science” includes everything from how humans in a shopping mall respond to cooking scents to how specific ad messages, once received, are mapped out within the human brain. (Source: “Advertisers, neuroscientists trace source of emotions in brain,” University of Florida News, February 19, 2008.)
My previous essays have posited that a major portion of the 2011-and-after gold bear included a clear and identifiable “PSYOP” (psychological operations) component (in additional to the blunt-force sales of paper gold, usually in the billions of dollars at a time). This component would have taken all those aspects of human nature that make us vulnerable to suggestion and, like those Jedi Masters in the Star Wars tales, pushed us toward a distaste of gold we did not even know we had.
It’s Not Nice to Mess with Human Nature
I am flabbergasted by the number of recent essays in the mainstream press saying that, because the mines have been strong so far in 2016, the top for that move must already be in…
Thanks, but no thanks.
If, as I have suggested over and over, the 2011–2015 gold bear was an artificial construct—the result of clever engineering by the central planners—then gold must at minimum retrace to the level of that first interference (i.e., $1,900) simply to garner the opportunity to discover what its TRUE PRICE would have been in the absence of manipulation.
Moreover, as indicated by the episode of the Billions TV show mentioned above, the average private investor and the average institutional investor are still conditioned to believe that the gold market is an outlier, an aberration, and a waste of everyone’s time.
So, as this new gold bull moves forward, a lot of money will suddenly (and belatedly) realize it is offside…and will need to get back onside pretty darn quick.
To those who say the current mining bull is over, I say it is just beginning.