Commentary: Bullion market on the couch: a psychological assessment

Description: The patient, named Mr. Goldfinger for the purpose of this presentation, is a 5,000-plus-year-old commodity residing within the precious metals sector and in use all over the world. At Dec. 13, 2002, the patient was spotted at approximately US$332.20.

The patient has a long history within the markets and has been considered a commodity and a monetary asset over his life span, which has been marked by moments of glory and utter despair.

Let us now examine Mr. Goldfinger using a medical-model, case-conceptualization format, and try to ascertain whether or not the various external forces in his upbringing have elicited within him a sense of inferiority and/or helplessness, both of which are symptoms that may precipitate a diagnosis of Major Depressive Disorder.

Additionally, we hope to offer solutions within a comprehensive treatment plan to facilitate the patient’s personal growth and well-being.

Chief complaint

The patient was referred to Dr. Cass, for the purpose of assessing its current mood and self-esteem. The patient presented himself as an individual who was extremely fatigued and suffered from low volume within its market over the past 10 years.

Despite showing signs of recovery within the past 2.5 years, Mr. Goldfinger noted that he spent a considerable amount of time thinking about how poorly his life had been going during the past 15-20 years and how powerless he felt in his defence against environmental constraints that were placed on his price by those working both inside and outside of his market.

A predominant concern of his was that he became severely depressed in late 1999, reaching a 20-year low. The patient reported that firms were currently downsizing and paying less attention to this sector; younger traders were deterred from wanting to work with him; he was faced with an existence within a dollar-centric financial system; his parents, the producers, struggled to promote consumption of his jewelry; his peer group thought of him as being a historical irrelevance; those who worked close to him in his market quarreled over whose trading and hedging discipline was correct and disputed over who was to blame for the decline of his self-worth.

Mr. Goldfinger emphasized during this intake evaluation that there appeared to be a diffusion of responsibility within his market participants for the cause of his low price, and consequently he experienced a pervasive sense of feeling isolated, lonely and victimized.

Finally, the patient has experienced physical abuse in the form of black eyes at the hands of its market participants la the Bre-X scandal, and through the media’s negative slant on mining companies by painting the solid ones with the same brush as the less-responsible ones who were not in compliance with environmental safety standards.

History of illness

Mr. Goldfinger initially began noticing a decline in his self-worth once the U.S. government decided to remove him as the backing for its currency in the late 1960s, consequently changing his role as a monetary asset to one of acting as a commodity during the mid 1970s.

Despite the fact that he was de-monetized from the Gold Standard, Mr. Goldfinger was able to maintain his self-image in the face of this setback and continued to hold a pre-eminent position within the U.S. markets into the early 1980s while carrying with him a representation of value, joy and wealth.

As reported in interviews with the patient’s caretakers (the market participants), Mr. Goldfinger began to experience grandiose thoughts about his self-worth in the late ’70s, when inflation was rampant, bringing his price to approximately US$800 per oz.

He recalled these days fondly, as his parents (the producers) showcased him to all of their friends (bullion bankers) and maintained his inflated price until 1980, when the Fed and Mr. Volker initiated a deflationary cycle that would last for almost 23 years.

This new policy reversed the depressed state of the patient’s estranged brother, the equity market. It was at this point that he remembered his parents scrambling to cash in and take advantage of supernormal profits.

In the mid-1980s, the patient noted that he experienced some brief mood swings that spiked his overall price and sense of industry. However, these moments were short-lived.

When the 1990s arrived, the patient reported that his mood was persistently depressed and his self-esteem began plummeting. Mr. Goldfinger noted that he “crashed,” and his price became profoundly depressed in September 1999.

He posited that a multitude of environmental factors led to this 20-year low in his mood and self-esteem. The patient emphatically stated that Alan Greenspan’s aggressive deflationary tactics helped the strength of the dollar but had an adverse affect on his mood and growth. Additionally, media outlets such as CNBC fueled the “bubble machine” of the 1990s, which pushed the patient’s self-worth and price down.

Currently, there appears to be a schism between the “hedgers” and the “non-hedgers,” causing Mr. Goldfinger to feel uncertain as to who has his best interests at heart.

The patient noted that he was tired of watching a peer named Mrs. Diamond receive notoriety and acclaim through the excellent marketing of her parents, who chanted “Diamonds are Forever.” Mr. Goldfinger stated emphatically that he would prefer it if people chanted “Gold is Forever.”

Within the past three years, Mr. Goldfinger started to make some positive strides toward regaining some self-respect against the U.S. dollar. He pointed out that the World Gold Council has acted as a court-appointed guardian for him, and has facilitated the slight improvement we have seen in his self-esteem through monies invested into marketing campaigns.

Family history

Mr. Goldfinger recounted that in the early 1980s, as his price swooned, his parents (the producers) began to engage in an addictive pattern of forward-selling in order to lock in their profits. Although some mining companies were responsible caretakers of Mr. Goldfinger, others appeared to become enamoured of the trend of selling gold as quickly as possible into the market.

Additionally, high interest rates fostered a great deal of over-hedging, which had the consequence of bringing down his self-esteem.

The patient noted that his parents’ perception of his value and worth was changing and that they were beginning to see his potential on the downside rather than on the upside. He stated: “My parents were always thinking about the future and never were concerned with giving me the love and nurturing that I needed at the time.”

He would later note that the windfall of profits in the late 1970s served as the trigger for his parents to expand production aggressively in the mid 1990s, when they invested a great deal of money into projects without robust rates of return.

Additionally, until five years ago, his parents did not realize that he wasn’t receiving the attention and recognition he so desperately craved in the form of adequate marketing of his products.

Also, the central banks’ (foster parents’) market behaviour had a negative impact on his mood and self-esteem in that they initially facilitated the unmonitored and haphazard lending of gold — a practice that introduced his parents to the addictive behaviour of forward-selling. This behaviour continued until the Washington Accord was signed.

The patient reported that this event helped to sensitize the central banks to the plight of his parents and gave him the support he needed to maintain some semblance of self-efficacy.

More recently, in the opinion of Mr. Goldfinger, the central banks have become increasingly fixated on currency, paper, and huge growth rates, and perceive this market as a historical throwback that takes up space in their vaults. The patient noted that the mid-90s was a time when the central banks relinquished the role of being one of his caretakers, and turned their focus to the high-flying IPO and technology stocks within the Nasdaq (his rebellious brother).

Consequently, they began pushing him out of their vaults and into the market place, as we saw with the Bank of England’s auction sales. Yet again, Mr. Goldfinger felt unable to control his own destiny, and his mood and self-esteem began plummeting to their lowest depths (prices).

The bullion traders reportedly affected the mood and self-esteem of Mr. Goldfinger during the ’90s, as they too became wrapped up in a trend — one of selling gold short.

Once again, addiction and the economic practicality of market participants hampered the patient’s ability to remain afloat in the wake of his volatile and arrogant younger brother’s 5-year reign of prominence, which was facilitated by the strengthening U.S. dollar. The patient recounted that, “these market participants were rewarded monetarily by the decline in my value and pride.”

Psycho-social history

Mr. Goldfinger initially reported that he had many failed relationships and losses in his long history. In particular, he felt ousted by the U.S. when that nation removed him as the Gold Standard for their currency.

Additionally, the patient lost a significant loved one at the end of 1979, when President Jimmy Carter left office. Mr. Goldfinger described his life under President Carter as being like “a wild party,” and he recounted how wonderful it was to lead an uninhibited lifestyle.

Mr. Goldfinger was jolted from the champagne room in the early 1980s when Mr. Volker and the Fed enacted deflationary measures that placed the patient under house arrest.

What’s more, he was appalled at how his parents began procreating at such a rapid pace, causing the supply and demand of the gold product to become unbalanced. He no longer felt that he was valuable to his parents, and when hedging and central bank lending became everyday occurrences, he began developing an inferiority complex.

Even in the 1990s, the patient’s self-esteem was dragged through the dirt by the media, owing to scandals and poor monetary returns, central bank auctions of gold, a strengthening dollar, a diffusion of responsibility within the gold market participants. A final blow came in the form of bullying at the hands of his younger brother, the Nasdaq.

Treatment

q As interest rates decrease, the math behind hedging has become less attractive. Less hedging leads to greater volatility and gives gold a chance to rise in value.

q Accept personal responsibility for the product. Stop focusing on conspiracies and collusion, and take action by learning from past mistakes. One needs discipline to be successful, and emotion is a sure path to failure. It is the collective diffusion of responsibility that has led to such low self-esteem for this patient.

q Increase the money allotted to marketing campaigns by the producers and World Gold Council for jewelry. If the diamond industry can do it so successfully, why can’t you? I have already noted elsewhere that Chevrolet is currently using the slogan “Your search for the Gold standard stops here,” referring to the quality of its cars.

q Lobby investment banks to initiate a gold-backed bond.

q Positive Reframing: Gold vs. IPOs — Gold has an upside right now and stocks such as Yahoo will never see the highs they saw three years ago. Gold is more reality-based.

q As we are seeing currently, gold acts as a commodity and as an asset. When investors become scared by terrorist attacks and national security measures, and develop mistrust for the government la Enron, gold becomes a proxi currency, like it was in 1980, when there were no other reliable alternatives.

q Market participants recommend visiting a vault or watching miners take gold out of the ground. This will help you realize how significant and brilliant the product you are trading actually is.

q Miners need to take more initiative in firing back at the negative press they receive about the degenerative effect they have on the environment. You need to nip bad press in the bud before the public becomes aware of these slanted facts.

q Less hedging leads to an improved upside in gold. Hedgers are on the other side of the producers, and are more practical while disliking risk. There is a notable schism between hedgers and non-hedgers, which has become more pronounced within the past seven months. We need to find a middle ground.

q In 2001, there was a consolidation of all sectors within this industry because of improvements in technology. This factor led the bigger clients to face off against each other while increasing their risk appetite for large deals.

q More reframing: No one visited this patient in the psychiatric unit when he was depressed. He has gone through some serious trauma and started to pull himself out of it on its own. He will be hardier, and his market participants will know how to handle him in the future. Equity traders will have much more difficulty knowing how to handle their child, Nasdaq, in the future. It is way too vast and deals with the retail market, comprised, as it is, of many naive individuals.

* We need to be agnostic. The market participants have done an adequate job of guiding gold through this transition.

* More reframing. There have been fewer cases of massive fraud or improprieties, compared with other markets. Bre-X vs. Enron.

* Sell gold on the Internet to retail investors. An example is the JP Morgan Chase venture with AngloGold; together, they created a vehicle that is Internet-based (goldavenue.com) and provides credibility to the platform of gold products.

* Industry must recruit younger generations through marketing and active solicitation.

* Central banks should view gold as an effective barometer of inflation to maintain its utility.

* View gold traders as mature business participants who have a specialization.

* Beware of “irrational exuberance” (Greenspan’s warning about unprecedented valuations that are not grounded in economic theory). Trading based on emotion is the surest path to failure.

* Positive Reframe: gold is one of the few financial assets written about in the Bible.

* If gold is going to move dramatically, the dollar is going to have to weaken. This has already started occurring, and the events since Sept. 11 may have served as the Prozac for gold in motivating it to some activity.

* Gold will forever have a store value, and it is a viable alternative to the dollar. It has done extremely well compared with other currencies in the past five years, even during dark periods.

* Be aware that mass markets are psychological, and slow to change.

* Market participants need to be aware of manic trends that lead to excessive short-selling — or the opposite position, as we saw with the Nasdaq. Similar stories.

* The U.S. dollar is overvalued and could still suffer a major correction.

* Higher-than-expected inflation, caused by sluggish world growth in gross domestic product over the next few years, would be a tonic for gold.

* A period of below-par economic growth is likely, owing to an emphasis on refinancing and rebuilding inventories.

* Gold is not suffering from major depression at present. Rather, it is suffering from major depressive disorder, recurrent, in partial remission.

— Dr. Alden M. Cass has his doctorate in clinical psychology and is the managing director of New York City-based Catalyst Strategies Group, which provides mental-health services such as their innovative TIER-III approach that assesses, intervenes, and prevents burnout, accidents, and turnover from hampering the productivity of brokerage houses, banks, mining companies and financial institutions, among others.

The company’s empirical and practical approach to improving employees’ stress management is based on Dr. Cass’s ground-breaking research assessing the mental health of Wall Street stockbrokers prior to the terrorist attacks of Sept. 11, 2001. More information on the company can be found at www.catsg.com or contact Dr. Cass directly at 914-774-1319.

A version of the preceding diagnosis was sponsored by and first presented to the London Bullion Market Association in July 2002.