Gold has obviously gone parabolic. We have owned the SPDR Gold Trust (GLD) since it was in the mid $50s (Feb 2007) which was shortly after it started trading. I have said over and over that we own gold because it tends to go up when people are scared like in the face of some sort of external shock.
What is going on now might be called an internal shock in that it is financial and economic events causing the panic...or what looks like panic. Part of the equation must be perceived debasement of the US dollar and something similar with the euro.
For now gold is obviously playing the role of counter strategy to equities. As you know gold tends to have a low correlation to equities but not always of course but for the last couple of weeks it looks like the correlation is perfectly negative--almost anyway. Gold will not always be this effective of a counter strategy which is ok as long as you realize this. For now it is very effective and my hunch is that it will keep going up for a while until equities find a bottom or this current event otherwise plays itself out/calms down.
Understand that I don't really care if it is a bubble (mania would probably be a better word) that pops because we have a modest allocation. I've been saying for years that I have never understood the 20% in gold crowd because the price is so volatile and while it is "working" now it will not always work. The difference in consequence of holding gold at the wrong time when it is 20% of your portfolio versus 5% is huge. Just like any other asset, finding out you had too much after a large decline is a bad place to be.
9 comments:
Silver?
Roger this talks about high frequency trades and ETFs and how they are screwing up the normal investors. Can you comment?
body
http://math.nyu.edu/faculty/avellane/QuantCongressUSA2011AlgoTradingLAST.pdf
I will repost link as I am not sure it all went thru. Sorry for bad edit. I broke it up to show entire link.
http://math.nyu.edu/faculty/
avellane/
QuantCongressUSA2011AlgoTradingLAST.pdf
Doug when I first got licensed in 1989 I worked at Lehman Brothers. We had a level two machine. Back then it cost a fortune and was a clear an obvious advantage for the few who had it. Then at some point the advantage was lost as the information became easier and cheaper to access. Now it costs nothing. back then level 2 was unfair to certain traders and irrelevant for people intending to invest for the long term.
The HFT now provides advantages for some and not others no different than it has always been in my opinion. Anyone trading short term needs to deal this and other disadvantages but I don't think HFT has much impact on long term investing. If you bought Philip Morris 20 years ago and you still had it would it matter if you had bought at $5.48, $5.51 or $5.53?
Thanks for your comments. I have been looking at your blog since 2008 the awful days in Oct and have foudn your comments very welcome. Always look for you on CNBC. Best Wishes.
Yeah "Gold is so Volatile"-it is a good thing stocks, real estate, commodities, currencies are not. Depending on data mining I am sure we can show some periods over 20, 30, 50 yrs where gold has been more volatile, but sure as heck over the last 5000 yrs the ride has been very smooth. Tell me about another stock or currency that has not gone to near zero in 100 yrs, yes including the us dollar. Would be interseting to look at actual volatility figures and not just perception.
kind of an odd comment in that gold had a fixed price for most the last 100 years. when the second fixing was broken the price skyrocketed wildly.
Yeah lets all buy gold at a near term top and escape the stock market at a recent panic bottom.
No wonder people lose money.
Excellent advice. If your asset allocation is right don't worry about day to day moves. Valuation is important and your asset allocation to gold should be lower now than it was in the past.
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