Reader Email: Did My Gold Analysis Spot Informed Buying Before Bhutto Assassination?
December 30th, 2007JJ writes:
I was stunned to see the news that Benazir Bhutto was killed within hours of your recent analysis on gold. As you said, gold did in fact rise further in the aftermath of that tragic event.
You wrote, “I find it interesting that some players see the need to take long positions right now; during a low liquidity time to trade.”
That seemed like a remarkable observation, in light of what was about to happen in Pakistan. Do you think that your gold indicators caught market activity related to pre knowledge of the assassination, or was it just a coincidence?
I think the answer, JJ, is that it doesn’t matter one way or the other. It doesn’t matter because there was no way to use the analysis to know that an international political figure was about to be assassinated. Sure, it’s interesting that the atrocity followed a strong move on gold during thin holiday trading, but as outsiders (people without privileged information), that’s all it will ever be to us. An interesting coincidence.
When I saw the news of Bhutto’s assassination, I thought to myself, “Ok, now I understand what that weird buying was probably about,” but it was after the fact. Remember that, at the time, my guesses were not even in the ballpark as the motivation behind the move. My speculation went like this:
It’s even more interesting if you read Paul Tustain’s recent analysis with December 31, 2007 as a date to watch. Indeed, the media is talking about the weak dollar, but the dollar is well off recent lows. My guess is that this is much more about Sterling and Euro holders who are frightened by those central banks’ recent decision to strap themselves to the mast of the sinking dollar.
And that might be right (or not), but there’s nothing in there about assassination, terrorism, Pakistan, etc. As any straight laced bean counter will tell you: the only relationship between my analysis and the assassination was chance.
However, as any [honest] trader or market operator will tell you, there are always insiders who know about major events before they happen. I saw weird things happen so many times in the market that, rather than just wrapping the coincidences in tinfoil and calling them conspiracies, I attempted to design a trading system based on the assumption that insiders were using their privileged information in the market before news hit. The trick was finding stocks to watch that had a low enough noise level to spot the signals. I wrote about this in detail in Insider Crimes, Funny Money and Options Rackets. There is no way (that I’m aware of) to apply a similar strategy to something like gold. There is far too much noise (which is great for the people who place trades based on their knowledge of future events). Likewise, there is probably no way—that you or I will ever have access to anyway—to derive actionable intelligence from the movement of commodity prices.
It’s just the unseen hand of the market, or a random walk, or not statistically significant, etc. Coincidences, in other words.
But hindsight is interesting, isn’t it?
