"I happened to read the following on-line article this morning and thought that the author makes a good point about the price action in gold during times of financial distress being partly explained by the fact that it is not a Tier-1 asset for regulatory purposes. I had never come across this line of thinking before and would be interested in your views."

David Fuller's view Thanks for the email and article which is likely to be of interest to the Collective.

The Canary in the Gold Mine by John Butler for Financial Sense could be a factor, but it is probably one of many. The Fullermoney view is that as gold increasingly became an investment vehicle, it would and now does perform more like other investments. In other words, its short to medium-term price swings (several weeks to several months) reflect the vicissitudes of the crowds which trade and invest in it.


Gold's predictable 'problem' was last year's acceleration up and away from the 200-day moving average. Within its overall secular trend dating back to 2001, such accelerations have been followed by lengthy medium-term corrective phases lasting about 18 months before the overall bull trend resumed.

From the August-September 2011 peaks we are about 8 to 9 months into that corrective phase. Consequently we have seen distribution as more people have sold than bought gold since its peak. However, if the secular uptrend is still intact, as we suspect, evidence in the form of higher reaction lows will emerge for bullion in the months ahead, forming the next accumulation phase as more people buy than sell.

That would suggest a resumption of the overall upward trend next year but first we need to see a new progression of higher reaction lows for gold within the current broad trading band since August 2011.