Whenever a market becomes volatile, there is often wild speculation about the why's and wherefore's of the movements. Commentators often feel the need to generate news where there is no solid information and that can only add to the bafflement that the small, but serious, investor feels as markets move around precipitately. 

 

Thus, today, we thought we'd take a look at what "big" players - the real ones with skin in the game - are saying about gold. Of course we caution that some of these investors have specific bets in the market and, like everyone else, they will describe the world they hope to see, rather than the world as it is.

 

BlackRock Inc.'s Catherine Raw said sales didn't reflect fundamentals and that it was a "panic event" and "out of perspective" because inflation may accelerate. Raw also said from London that "The probability of inflation over the next five years is higher, not lower, than it was last year. Other things, such as cash losing money (value), the Cyprus event, savings being targeted, means people are looking for alternatives." 

 

It should be noted that BlackRock is the largest holder of iShares Gold Trust and the fifth largest in SPDR (GLD).

 

Bart Melek of TD Securities in Toronto told Bloomberg yesterday that "A correction of that magnitude begets a fairly robust bounce back." He added that central-bank buying is a positive. 

 

"Although still weak, the underlying physical market is responding to the price decline," HSBC said. "We believe coin and small bar demand is rising. This is evidenced by a rise in premiums for gold bars in Singapore to their highest levels in 18 months, according to Reuters. We also believe central banks, notably in the emerging world, may be attracted to the market at these prices. These USD-laden central banks still require bullion to help diversify their foreign-exchange holdings."  

 

Gold's long-term trend is "intact," according to John Reade, a partner and gold strategist at Paulson. It is naturally in Paulson's interest to give gold a pep talk since they essentially took one of the biggest baths in gold trading history last week.

 

The Voice of America, reporting from India said, "There is also increased interest in the wholesale gold market in New Delhi, where traders are clinching more deals than in the past few years. The head of the Delhi Bullion and Jewelers Welfare Association, Vimal Kumar Goyal says orders from retailers have nearly doubled since prices tumbled."

 

The Sage of Omaha, Warren Buffett, has been issuing statements that say that the gold rush is over because "fear" is no longer a ruling sign in the constellation of investment. 

 

That may be, but the other half of the gold Gemini is inflation. Traders may have to wait for it to kick in, but it eventually will. Economics 101 tells us it must because eventually the Federal Reserve's ledgers have to be balanced and, if everything goes as planned, the U.S. economy will heat up, and probably become overheated. 

 

We wrote some weeks ago that there would be a time in the precious markets when we would have to march through the narrow defile between safe-haven gold and inflation-hedge gold. We may be in that moment right now.

 

That there is no consensus among big players is indicative of how volatility might continue for some time.

 

But, volatility is not a bad thing. Catching prices as they are rising is what matters while getting out when prices slide preserves profits. 

 

As always, wishing you good trading,