Following the gold
Today’s AFR carries an article on gold prices, and makes the point that this time last year, nearly all analysts who followed gold expected the price to rise in 2013. In contrast, gold experienced its worst year since 1981.
This type of article doesn’t get written very often – journalists generally are reluctant to hold market commentators to account for their predictions, presumably because they want to stay on good terms with people whose commentary they may need for future articles. As a result, readers may not realise how unreliable these forecasts tend to be. When analysed correctly, most financial forecasts offered in the media turn out to have little to no predictive value.
To be fair, the future is highly unpredictable, and the best analysts will get a large percentage of their calls wrong. My point is that this could be made more apparent to the audience, who may be inclined to allocate too much of their hard-earned capital on the basis of a confident prediction by some market “expert”.
At Montgomery, we certainly make our share of mistakes in judging the future, but we try to recognise and acknowledge the limits to our ability to forecast. As a result, were happy to revisit our own commentary on the gold price, published in January 2013. Click here to view.
Tim joined Montgomery in July 2012 and is a senior member of the investment team. Prior to this, Tim was an Executive Director in the corporate advisory division of Gresham Partners, where he worked for 17 years. Tim focuses on quant investing and market-neutral strategies.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
Chris B
:
As you’ve pointed out before Roger, the iron ore price was $10 some time in the 90’s and it rose to $180 or $150 by about 2007. None of the “experts” predicted it would rise so high in a decade.
This taught me a few things. It is so hard to predict commodity prices in the long term. Forget about short term, everything is hard to predict in the short term and any good investor should not attempt short term predictions.
If you look at mining companies that mine for just one commodity eg Rio (mostly iron ore), their share price is strongly correlated to the commodity price. Given that commodity prices are hard to predict in the short and long term, so to are mining stocks. If I can’t evaluate their future earnings prospects, I can not invest. So I don’t invest in mining stocks.
As a side note, changing subject slightly. I once saw a list of the biggest threats to banks, I saw the list in 1990 and the list about 15 years later, the list was totally different. And this list was made by “experts”. It isn’t just mining “experts” that find it hard to predict things, it happens in other industries as well. Banks biggest threat during the deregulation period was foreign banks after Hawke/Keating opened up our banking sector to overseas banks. Foreign banks have never been a major threat.
Allen Dodd
:
I agree on the reliability of “expert” advice. I use the Comsec site extensively for research and it is not uncommon to see in the “Forecasts” section that advice from half a dozen analysts can vary from Strong Buy, to Moderate Buy, through Hold to Moderate Sell to Strong Sell simultaneously for the same stock on the same day. I would love to sit them all down together and invite each to explain the basis for his advice.
Roger Montgomery
:
If you had access to their research reports it would help to answer the question…
Luke
:
It’s great when you get it right.. Well done! The comment back from the 29/1/13 advised gold is very unlikely to get below US$1300… I guess it doesn’t matter what production prices are??
Kelvin Ng
:
Hi Tim, great call on the gold price in Jan 2013.
What is your view on the gold price now?
Kind regards,
Kelvin