Over the weekend there was an argument on twitter about how much fear accounted for the price of gold. As it was a holiday weekend I did not follow the whole conversation but it probably ended like most on the internet, with no one winning.
It did get me thinking about how much a story can impact price. One was arguing that not much fear was priced in while the other argued the opposite. I do not have an opinion either way but what is most important is the believability of the story/narrative.
I remember it like yesterday, I was visiting a friend who was a broker. I overheard the broker next to him talking to a client. The story went something like, it is cold in the winter, there will be more demand for natural gas, the price will go up. If you live in a cold part of the world this is a very believable story. I could instantly put myself outside on a cold Midwest winter day and waiting to be home so I can crank up the heat. Yes it does get cold in the winter and I do use more natural gas. A market rises and falls on supply and demand.
Any story can be fashioned for about any product/stock out there. The problem is that if you are “selling” a story, in order for it to be effective it must be simple. The plot behind the story is always much thicker. The plot being what is most important to that market at that time. Knowing what can happen in the next scene makes it possible to make a more informed decision. Over time the more informed decision, when executed correctly, will be win out.
I do not know how much the story is priced into gold but I do know that eventually there will be no more new people to sell the story to. It could also be that by that time gold is money.
If you are smart enough to formulate a story don’t be stupid enough to believe the ending can’t change.
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