May 012015

Earlier this year Societe Generale mapped asset classes in a matrix according to popularity and profitability over the past few years. It got me thinking about applying the same idea to gold to show how its sentiment had changed over the past 10 years.

Working out the profitability dimension is easy – we can use the percentage change in the gold price. Popularity is a bit harder as there aren’t any investor sentiment surveys. To approximate sentiment, I have used changes in ounces held by the major gold ETFs, funds and other services like Perth Mint Depository. The result is the chart below.

Gold Price vs Sentiment Map

Gold Price vs Sentiment Map

For each month over the past 10 years the map plots a point for the percentage return on gold (over the prior 6 months) and the percentage change in ounces held (over the prior 6 months). The monthly plot points are then joined into a line for each year. I placed an arrow on December of each year to give an indication of the direction of movement over time.

For this sort of scatter type chart we would expect to see a direct relationship between price and popularity – as the price goes up, more investors would buy gold. In general we do see that most of the points are scattered diagonally from the Loss/Loathed (“Sad”) quadrant to the Profit/Liked (“Happy”) quadrant.

Particularly interesting is 2008 where the line strays into the “Crazy” quadrant where people like an investment that is losing money. As the gold price declined during 2008, the purple line moves towards the left (Loss) but instead of going down to Loathed, investor flows into gold actually increased. The explanation for this behaviour is that investors were fearful and looking to protect wealth. This subsequently turned out to be far from crazy as the gold price increased significantly from 2009 to 2011.

The 2010-2012 period (light blue and green lines) are also interesting in that while gold was still showing positive returns, interest/growth in ounce held never got above the 10% level. This weakening in the sentiment then led into Loathing, where we have been mired since.

So far the 2015 red line looks encouraging, with any luck gold will move out of the Sad quadrant and into the Happy corner (it is not coincidental that I put The Perth Mint’s swan logo in the top right corner, that is certainly a happy point for us as well as our customers).

Note on calculations (for nerds).

Using month on month percentage changes produced a lot of noise in the plots – I found a rolling 6 month change was ideal for showing the general direction of the trend.

For the gold price I used a rolling 5 month period average on USD gold prices as recorded by The Perth Mint, to smooth out the data and produce less noise in the plot.

For sentiment I used a rolling 5 month period average of the following ETFs/Funds/Services, as these were the only ones in existence 10 years ago (didn’t want to skew the ounce data with new funds starting up mid 10 year period, as they usually have an initial surge) and they also had to allow outflows and inflows (hence closed-end funds like Central Fund of Canada was excluded), in order of size: GLD, IAU, ETF Securities (LSE & ASX), Perth Mint Depository, Bullion Vault, Permanent Portfolio Fund, ABSA NewGold, Gold Money, Bullion Management Group, Goldist. Thanks to Nick at for the ounce data.