Today’s trading was fascinating. My account was red and full of blood as never before. A true blood in the streets. A massacre. It was not only Gold which sank deeper than on Friday on a lot larger volume than on Friday, but the entire market followed. If you follow my Facebook fan page, I posted that the volume would increase by the end of the day. And sure enough, it happened. It was an indication that selling pressure increased and gained more speed. And that speed may last for extended period of time than just Friday or today.
Are we done with selling? Maybe yes, maybe not. However, last Friday I already considered this drop in Gold as a great opportunity to buy more shares. I opened a new conditional order to buy 6 shares if the stock rose at or above $147.40 a share with a limit at $147.40 a share.
Today the stock fell down with a huge gap. I think it is now even better opportunity to add more shares at a cheaper price. So today I lowered my conditional order to $134.43 a share. This price allows me to buy 7 shares instead of 6 as originally planned.
But let’s go to my question. If you are investing into gold, are you panicking?
Out there, there are many analysts, prognosticators, forecasters, soothsayers, astrologers, fortunetellers, predictors, wizards, gurus, so-sayers, and who knows who else telling you that they told you so, and that Gold is doomed to crash, and it will go down to $370 an ounce, and it will take years to recover, and gold is not an asset, and gold has no value, and it shouldn’t be in your portfolio, and it will go to 1200 an ounce (120 a share of GLD) and so on.
I do not know what about you, but this remains me the same euphoria six or so months ago when those so called professionals were challenging themselves in predictions to which heights gold will go. Do you remember bank analysts predicting gold ending at $2000 an ounce by the end of 2012, $3000 by the end of 2013 and I have even seen predictions of gold reaching $10,000 an ounce in the near future.
Does this mania sound familiar to you?
Here is how I see it
Let me know if I am wrong, but we may agree on that investors invest into gold, because they consider gold a safe haven. They want to preserve value in bad times in case of disasters in financial markets or expectation of high inflation, weakening dollar or stock market not performing. Am I correct?
In the past I observed that gold usually went in the opposite direction than the dollar and in many cases in the opposite direction of the stock market.
I remember once, a few years ago an adviser who was administering our company 401k plans told us how we should keep our portfolios balanced. If we invested in stocks and money market funds for example, and we had a set allocation in those stocks what would you do to keep it always balanced?
Well, you would be trimming those stocks (selling portion of your holdings) which are running high and invest proceedings and new contributions into the money market or less performing stocks. As the cycle changes and the stocks which were originally performing are now correcting, you start trimming your money market funds or previously lacking stocks, which are now running high and moving your proceedings back to the now lacking stocks.
Do you get the point? Let me repeat it. You have a stock A and stock B. You always want 50% allocation in each. If stock A runs high, so your allocation changes to 55% and 45% in the stock B, you sell 5% of the stock A and buy 5% of the stock B to keep it allocated per your original plan. When the cycle changes and the stock B starts running high, you start doing the same in reversed manner.
These days, stocks were running high and gold was lacking. Today’s gold and stock sell off may be a sign of a trend reversal in the stock market. It was hard to find stocks in which you would be willing to invest and pay a fair price without overpaying. But gold was falling and providing buying opportunity. Now we may see the reversal. Gold rising and stocks falling. I do not want to be a doomsayer, but I think, stocks deserve correction the same way as we are seeing in GLD these days, don’t you think?
At the same time, I still believe, that in long time horizon the dollar will be losing value as it has ever was and gold will counter this trend. In my opinion the dollar is growing because of Euro and China’s troubles. Also the FED’s policy will have a negative impact to the dollar in the future and the bubble (dollar, bonds) will burst once again.
These are the reasons why I am buying GLD these days and take the blood on the streets as a great opportunity. What about you?
Image courtesy of Boykung, Stuart Miles, sakhorn38 / FreeDigitalPhotos.net
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