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What author of Antifragile has not told about Precious Metals

27 Jul

Taleb does not say this in his book, but precious metals are both antifragile and robust or unchangeable in nature. Normally, the price of precious metals would have risen alongside the increase in the money supply.

The concept of antifragility comes from NaseemTaleb’s book Antifragile. In it, he describes things and processes that thrive on mistakes and volatility.

Basically, an antifragilesystem is one where error and/or risk is allowed, encouraged and leads to improvement overall.

Fragile versus robust

A fragile system is one that is artificially controlled, like a modern forest fire, for example. Such control ultimately leaves the system much more vulnerable to disaster.

Another example is the financial system in the age of constant bailouts and too big to fail companies. Add to this the absence of moral hazards, and the resulting extreme misallocation of capital and risk has resulted in apersistent disconnect between price and fundamentals.

On the other hand, a robust system is one that is essentially stable over long periods of time. An example would be the long term purchasing power of precious metals across all paper currencies.

Paper legal tender is fragile

Perhaps the ultimate fragility is an intrinsically worthless paper legal tender maintained by force and the control over the commodity futures markets by allowing sellers to pay for their trading losses in paper instead of real goods.

Paper currencies have value that is only based on debt and a country’s ability and willingness to repay it. Unfortunately, the debt can only be serviced by printing new paper currency, which then results in more debt.

Crises of confidence are the ultimate emotionally driven events, and a severe U.S. Dollar crisis could wipe out an entire investment class practically overnight.

Antifragile applied to precious metals

Taleb does not say this in his book, but precious metals are both antifragile and robust or unchangeable in nature. Normally, the price of precious metals would have risen alongside the increase in the money supply.

Nevertheless, the more intervention occurred, the worse the volatility observed as price swings increased. More volatility increased emotion and investor interest, thereby leading to greater liquidity and ultimately demand.

This is a sign of failure — as quiet desperation protects the fragile U.S. Dollar based fiat currency system.

Furthermore, precious metals are antifragile because market control and mispricing alongside rampant money creation results in bad money chasing out the good, a la Gresham’s law.

The more their prices areartificially suppressed— overtly through propaganda and covertly through price controls — the stronger the case for holding precious metals becomes.

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Perpetual volatility: Will investors abandon Gold?

24 Jul

mcx gold tradingGold futures are weighing and responding in earnest to the Ben Bernanke Congressional testimony of the last week. While the futures look comfortable in dealing with the anticipation that the Fed would not taper as soon as the markets had thought, lending it some buying appetite, the prospect of a tapering lingers with an uneasy calm.

“There’s still a bit of a thirst for the metal,” Jonathan Barratt, chief executive officer of Barratt’s Bulletin said to Bloomberg.

“Given that Bernanke has already suggested that tapering will only occur when they’re very comfortable with the economic outlook, we’re going to see tapering on the agenda but it’s going to be some time before it actually starts,” he added.

Gold on the Comex for delivery on August 13 was seen trading at $1,338.85/oz, a gain of $4.15 or 0.31% as of 10.05 AM IST.

The multi-billion Dollar question used to be this: When will the US Federal Reserve start to taper? After a series of testimonies this year, the answer looks very much elusive. The Fed could not be blamed on this, because they are doing what that is mandated out of them.

The Fed do own the trigger of shooting the Quantitative Easing measures point-blank. Only thing is that they cannot pull it at their will. In fact, having started this whirlpool of money printing, a genie is out, which is refusing to go into the bottle.

The markets have in effect become QE fetish to such an extent that it would be difficult to pull the trigger on QE execution. Playing to the gallery is imperative in a politicized economy.

Now, the mult-billion Dollar question is if the QE measures would be tapered at all? High profile leadership at PIMCO, world’s biggest institution investing in bond markets, believe that the ultra-loose monetary policy may continue until it is 2016.

That is no walking distance from 2013!

The fact remains that gold futures would see extended periods of volatility as data releases occur every time. The Fed has clubbed the QE measures to a recovery in job markets, housing markets and a moderate and healthy inflation. Each data release in this category, fluctuating as each one is, would take the futures on a roller coaster ride.

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Any negative sign is taken for a point to rally up and any positive sign on economy could be interpreted as a point to rally down in gold. Now imagine that happening all the way to 2016! That is a perfect incentive for investors to abandon gold. Especially when there are other less volatile instruments to conduct trade and make money.

But, at some point in time, all these QE measures would have to be curtailed. That would be the time when markets would see the perfect storm.