Gold's prophet of gloom
As the precious metal loses its lustre, Dana Rubin asks whether it's all Andy Smith's fault
Sunday 02 November 1997
For the past 10 years the UBS precious metals analyst has been an unremitting bear on gold, the most forceful voice arguing that prices would continue down.
So when it was announced on 24 October that the Swiss government - the staunchest of gold defenders - might sell half its reserves, it seemed to confirm Mr Smith's message that gold is shifting away from its role as a backer of global currencies and becoming a simple commodity.
Gold prices plunged to a 12-year-low of $309. Even in a week when you might have expected investors to take refuge in gold, the price barely recovered; it was trading at $313 on Friday.
"It made me even more frenzied," the 43-year-old analyst says. "If everybody starts to agree, the idea is past its sell-by date. What do I look at now?"
The idea of an "even more frenzied" Mr Smith is hard to grasp. His breathless daily, weekly and quarterly reports read like madcap missives from a polymath professor. Packed with arcane allusions, they leap between history, literature and philosophy, quoting the likes of Shakespeare, the Marquis de Sade, Erica Jong, Henry James and the Tuscany tourist office.
Here's Andy Smith on gold prices: "In 1922, Ernest Hemingway described Switzerland as 'a small steep country, much more up and down than sideways'. The antithesis, in fact, of today's dollar gold price." And: "Assigning China sole responsibility for rejuvenating gold is an unfair burden, even for a billion shoulders to bear."
Not everyone is impressed. "People either agree or disagree, and when they disagree, they disagree adamantly," said Michael Simon, senior manager mining finance at MeesPierson.
The differing views reflect a larger debate about gold's function. Some say it will keep its traditional hedge role, but some - like Mr Smith - say it's in the process of being demonetised.
Recent history seems to support him. The Canadians, Belgians, Dutch and Australians have all sold off reserves in recent years. The Germans, Swiss and even the Americans are thinking about it.
There are also those who say Mr Smith's persistent bearish stance itself drives prices down. "I think there is some truth in that," says Ian Henderson, director of Fleming Investment Management. If the price were turning down anyway, then "the voice of a prophet pushing in the same direction" would only accelerate it.
And there are those who say that in pursuit of his overarching theme, Mr Smith loses track of the short term. "In the general trend, he's been right. In the absolute target, he's been wrong," said George Milling-Stanley, manager of gold market analysis for the World Gold Council in New York, the industry's trade group. "He misses opportunities for his clients to make money."
For instance, during the first quarter of this year, in an atypically bullish mood, Smith said gold would rally to $400. Instead it went to $320. A year ago, he predicted it would go below $300. That hasn't happened yet.
Mr Smith, the son of a postman and a seamstress, studied economics at Reading and LSE and then spent 10 years as an economist for the British civil service, for Consolidated Goldfields and for BP before joining UBS in 1988 as a commodities analyst. After a year, he offered to specialise in gold.
How does he keep it up? "I read and read and read," he says. In his spare time, he swims, jogs, lifts weights and sleeps five hours a night. Oh yeah, he's also married with two children, aged 10 and 12.
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