Reading this morning’s missives from the punditocracy, I couldn’t resist pointing out a perfect example of what Gata’s Bill Murphy calls market action making market commentary. As gold leaped higher Tuesday, we had Kitco’s Jim Wyckoff struggling for justifications, including this gem:
By Eric Dubin
“Gold prices were boosted overnight on news that China’s inflation rate heated up a bit. China’s June consumer price index was up 2.7% on an annualized basis, compared to a 2.1% rate in May and above the consensus forecast for a 2.5% rise. Gold and other hard assets have traditionally been used as a hedge against inflationary price pressures. The China inflation news coincides with the recent surprisingly sharp rise in U.S. bond yields and home mortgage rates. While still not perceived by the world market place to be problematic, inflation is a phenomenon that creeps up and is not recognized as a serious problem until it already has a strong grip around the throats of major economies. Many market watchers have never been convinced that the past few years of the major central banks of the world printing money that such would not come back to produce a strong inflationary bite.”
You can click here if you want to read the rest of his write-up. Wyckoff bases much of his work on technical analysis. But he’s not a one trick pony. Generally speaking, he’s very smart. He’s more than able to tread water in the global macro pool. The trouble is, when one is in near total denial about the impact of the cartel’s periodic direct carpet bombing (e.g., even the April 12-15 bombing hasn’t turned around his worldview), making questionable global macro observations like this morning’s comment about China is nothing more than a silly attempt to match price movements with something — anything — off the newswires.
Chinese policy makers are downright paranoid about rising inflation and their overheated property market. With thousands of protests each year, Chinese leaders take socio-economic stability seriously. Their heads are on the line, quite literally. We’ve seen them take extensive actions over the last year to manage liquidity. Every so often they’ll come out and loosen credit to nurse economic growth — as they did surrounding the turn of this year. But they have also shown an unusual quick propensity to step on the breaks and taper in a way that must make Fed Chair Ben The-Fed-Is-F*cked Bernanke jealous.
Tuesday’s uptick in inflation should be properly viewed as a motivator, at the margin, for Chinese officials to tapper liquidity or simply stand aside. That analytical interpretation matches their policy framework and recent history. Chinese citizens aggressively buying gold all these months are not going to be motivated one way or another by an uptick in inflation. In fact, the explosion in their purchases since the April cartel carpet bombing coincided with continued lackluster reports about inflation globally. Inflation will play a big part in the return to gold and silver later this year. But Mr. Wyckoff’s comment Tuesday morning is a questionable global macro call, at best. If gold had fallen Tuesday analysts like Mr. Wyckoff — and certainly, wire story reporters and the talking heads on financial television — would likely have been interpreting China’s higher inflation report as a justification for Chinese policy makers to tighten liquidity, which would “explain” gold’s negative reaction. That’s how the “market action makes market commentary” game plays out.
Normally, I wouldn’t go out of my way to call out a pundit. But given Kitco’s history of near total denial about the cartel’s documented history of gold market manipulation, the spotlight is well deserved. I’ve written to Mr. Wyckoff a few times over the years, providing him with direct links to specific documents. Others have done the same. One of these days, he’ll come around and join the reality-based community. He’s too smart to not eventually see the light. In the meantime, we’ll just have to suffer through goofy “market action makes market commentary” rubbish.