Price Analysis is Useless, Right?

Technical analysis is only a piece of the puzzle.

Bullion.Directory precious metals analysis 27 March, 2015
By Christopher Lemieux
Senior Analyst at Bullion.Directory; Senior FX and Commodities Analyst at FX Analytics

Jeff Nielson of Sprott Money posted an article that is sure to ruffle Terry Kinder‘s feathers: “Why Price-Analysis is Meaningless.” Nielson argues that analyzing price action is useless, and the only why of determining price is via the economic model of price of supply and demand.

Nielson discusses economic equilibrium, which would be the “perfect” price – that is where supply and demand are balanced without any outside influences.

In regards to gold, market equilibrium is where all the gold miners supply just enough gold that is demanded of buyers. The article states that only when the gold market reaches equilibrium will the price of gold hold any significance.

He states that the current gold market is rigged by the “crime syndicate.”  It’s now well known that London gold fixing banks have had their hands slapped for manipulation, but even taking that into consideration, it is still unlikely that equilibrium would be reached.

According to the World Gold Council’s (WGC) Gold Demand Trends, the total demand in 2014 came in at 3,923.7 tons, which was a four percent drop from 2013.

And, this was with all the central bank buying.

Total supply was virtually unchanged at 4,278.2 tons. Interestingly enough, gold demand declined even though the average price was $1,266.40 per toz. opposed to the $1,411.20 in 2013.

The WGC states that there is over 177,000 tones of gold above ground.

The article brings to light that if equilibrium is delayed for an extended period of time then prices are criminally manipulated. The only problem is most of the economic underpinnings in the article is theory, much like technical analysis. “What possible analytical value can be derived from ‘analyzing’ the phony/fraudulent current price for silver of roughly $15/oz (USD) when any rational price for silver – expressed in our debauched fiat currencies – would start at $1,000/oz?” asked Nielson.

To be frank, the article failed in explaining to readers why price analysis is useless or irrelevant; and it even swayed from the primary focus of price discovery through free markets. One on hand, Nielson explains that price only really means something if markets reach their equilibrium. On the other, he said that silver should start at $1,000 per toz. while using the current US monetary base.

Truth is, no single method of analyzing an asset is perfect.

Technical analysis has always been a method of trying to utilize price trends to forecast short- or medium-term price continuations or reversals. It is often using as a method of trading – not price valuation – and is used in conjunction with other data.

The most successful traders or investors are not closed-minded and are willing to accept and use other supportive methods. Markets are dynamic and methods of analyzing them must be, too.

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