Analyst is an individual whose primary function is a deep examination of a specific subject. Gold analysts study factors influencing the price of gold by various methods and try to predict future moves. Naturally, the best gold analysts are more accurate than other.
In general, analysts are persons who undertake a close examination of a specific subject. Gold analysts study the current situation in the precious metals market and attempt to predict the future moves of prices. From a wide range of potential drivers of metals prices they try to pinpoint the key ones that will most likely influence these prices at a given moment in time.
In this sense, gold analysts can be seen as trying to look into the future. Obviously, nobody has a crystal ball and this is the reason why even the best gold analysts make mistakes. Many complicated processes influence the price of precious metals and not all these processes can be easily observed. Some can only be seen in hindsight, which is not very helpful to investors. This is why prices of metals are often perceived by the public as being random. However, even if analysts are not able to precisely predict the next move, they often can point to the most likely scenarios. This is extremely important for investors.
Keeping this in mind, makes it easier to understand that no analyst can be right all the time. In fact, you should be extremely cautious when analysts boast 100% effectiveness. It’s a simple truth that no one can be right all the time, especially in financial markets. Usually, if an analyst is right most of the time, approximately 70-80% of the time, this would be considered a great result.
This also implies that you can’t judge the performance of an analyst based only in the short term. He could happen to be on a lucky streak. To properly assess the accuracy of a particular analyst, you need to spend some time to watch their reacttion to different situations and later compare their forecasts with real price changes. Only after that would you be able to determine if they qualify to be in the top group of analysts which means that they are right in 7-8 out of 10 cases.
The common ground among precious metals analysts is that they attempt to predict the future but they go about it in various ways. Some rely on technical analysis, some on fundamental factors, and others on quantitative analysis or intuition. Some mix these tools (or other tools) and other rely solely on one of them. It is considerably hard to find two similar precious metals analysts and two identical forecasts – choosing an analyst to support your investment decisions is therefore important as some may turn out more accurate than others.
Gold Analysts vs. Gold Promoters
Investors, who aim to profit on investing in gold or through gold trading, should be very careful when choosing, what analysis to follow. It's easy to distinguish between real analysis and "analysis" if your a market professional, but if your just investing / trading in your spare time (which nobody has too much) or are just starting your investment adventure, it's very easy to become a victim of a promoters that describe themselves as analysts.
Promoters (for instance gold promoters) will always tell you how great a given asset (here: gold) is and how you should always buy more, because of <list of reasons> is going to make its value soar shortly. Why? Because they are either making money selling gold or gold analysis (and people want to read that the asset of their choice will go up) or they are making money from ads and have to generate shocking content to attract readers (silver manipulation, anyone?). There may be other reasons like personal or business interest in precious-metals-related endeavor - for instance, mining company CEOs virtually have to promote whatever they are mining as doing otherwise would not be in the best interest of the shareholders. But, just because they aim to serve their shareholders, it doesn't mean that they serve you - the investor / trader. In short, promoters' goal is for them to benefit by promoting a given asset. Their interest does not necessarily align with the interests of investors and traders.
Analysts (for instance gold analysts) will aim to grow capital through good investment / trading decisions. Sometimes the correct decision is to stay out of a given market and maybe to even short it. Analysts' goal is to have excellent investment and trading results for their clients and for themselves. Analysts' and investors' interest are aligned.
Both will sound convincing and actually it is often the case that the promoters will appear more convincing. The reason is that they will rarely (if ever) have any doubts regarding the asset that they are advocating. They will tell you the same thing regardless of what happens, so they don't need to consider the circumstances and they can practice their persuasive skills. Analysts, on the other hand, will always have doubts whether their position is justified and will be on their toes to detect any anomaly or signals that would suggest closing the position or switching it to the opposite one.
Promoters are like the friends that will always tell you what you want to hear and will never argue with you as they simply don't care about you and only want to be in your company for their own benefit.
Analysts are like the friends that will tell you the truth even if it's not pleasant, because they actually care about you and what's best for you even if it comes at the cost of temporarily unpleasant situation.
Which friend would you like to hang out with?
Naturally, not everyone who provides gold analysis or sells gold bullion will be a gold promoter and the same goes to those who discuss the manipulation issue. There are a few easy ways in which one can check, with whom they are talking to. The easiest way is to check whether they were ever bearish on a given asset in the medium term for at least a few months. If not, they odds are that they are a promoters, not analysts. Why? Easy - analysts know that you have to buy low and sell high to make money and buying low can only mean buying after a decline. If one doesn't acknowledge the need to detect big declines, they are admitting that they are not really interested in your results, but in promoting a given asset.
When you provide them with a bearish signal, how to they approach it? Will they take it into account, discuss it, and really analyze it? Or will they just say something about manipulation, technical analysis not working for the gold market despite hundreds of times when it did work and even a fundamental justification of why it should be used. Or maybe they will pretend that the question was never asked? Naturally, the latter type of reaction suggest that it's a gold promoter, not an analyst.
Finally, do they claim that gold and silver are likely to soar based on a reverse head-and-shoulders pattern that was not completed? Incomplete patterns have no predictive power and analysts know it. Gold promoters, however, will want you to think that gold and silver going to move higher regardless of whether it's a result of something that is going to work or not.
Choose your friends wisely.
Analysts vs. Investment Tools
We have pointed out that analysts cannot always be right. So you might ask yourself if it is possible to improve your decisions in other ways than relying on analysts. As a matter of fact, you can do that by resorting to various investment tools. These tools offer the objectivity analysts sometimes lack and they can precisely measure the developments on the market. However, you need to remember that there is no real competition between analysts and investment tools. In reality, you must use both quantitative methods (tools) and qualitative ones (analysts’ opinions).
While tools offer specific results, they more often than not operate within a scheme. It is analysts who can think outside the box and make decisions breaking the scheme, which is priceless as market patterns and initial assumptions may change in a blink of an eye.
Diversification Between Analysts / Money Managers
Since both analysts and tools are sources of signals, one can diversify between tools and analysts, which is likely to result in decreasing the portfolio's variability (which is usually referred to as the portfolio's risk). The same can be said about individual tools and individual analysts or money managers. As you may know from the report about precious metals portfolio structuring (in the Key Insights section), we are fans of diversifying many things - even approaches. That's why we treat insurance capital, long-term investments and speculation separately. Within the speculative capital there's a diversification between sources of signals - ourselves and indicators. As more tools are launched, the diversification benefits will increase. Analysts or money managers that apply active management could be seen as sources of signals as well. Diversifying between them can also prove beneficial.
One way to apply this kind of diversification is to follow a given analyst to the letter with a part of one's capital and manage the remaining part subjectively (for instance taking also other analysts or tools into account). In the case of money managers, the idea would be to use half (or more, or less, depending on how much you trust a given manager’s abilities) of your capital to invest in their product and use the remaining part to invest on your own / based on other signals.