Metals = Trade
Research for Online Investors
We called Gold the Trade of the Year
for 2012 on Dec. 29, 2011. Right now we have mud on our
face. In our prediction of another great year for gold, we
admitted the shiny stuff could go lower for the year if; the dollar continued higher, the U.S. budget was
balanced, if eurozone countries don’t leave the monetary union, if no European banks went bankrupt or if Ron
Paul was elected President.
Where is the economy and why is gold
lower? The dollar has continued higher because the euro has been falling
and the Federal Reserve has not initiated quantitative easing. The U.S.
budget is not balanced, but Germany has stood its ground to force fiscal accountability in the
No eurozone countries have left the
eurozone and while their banks have been propped up, they have not failed. The reported runs on banks have been because of sovereign risk rather than bank
risk. The blurry line between sovereigns and banks in Europe makes this
a difficult call.
Here is a three year chart of GLD
with the 150 day average we referenced on 12/29 when we recommended Gold as the Trade of the Year.
Warren Buffett never hesitates to
trash gold as an asset. We have written about our disagreement with him
on this. We look at gold as a currency, the oldest in the
world. Currencies are a store of value but vary in their weight against
other currencies. Right now gold and silver are losing value to fiat
With austerity the buzz word in the
eurozone and the House of Representatives slowing the budget abuse in Washington, why should gold and silver go
higher? We have negative interest rates which are normally good for
precious metals because the cost of holding is low, but the velocity of money can be compared to snail
racing. Commodity prices point to deflation rather than
inflation. This is not a good situation to store value in precious
Our Long-Term portfolio subscribers closed our gold and silver positions earlier this week as
we expect more weakness ahead. The conclusion must be that precious
metals are a Trade not an Investment.
You don’t invest in dollars, Yen or
Euros; you trade them. Precious metals are the same. Investments should make a return like a business or a stock that pays a
dividend. Trades are entered for anticipated profits (and
losses). It is imperative to know the difference. Many forget this and we have been guilty also.
When we recommended Gold for 2012,
we planned to hold it through the year, confident it would increase in value and we could book a nice
profit. Like any asset that does not pay a dividend, you have to sell it
to make money!
When do you sell gold and
silver? When it is profitable. When will we recommend buying precious metals again? When the Federal Reserve announces QE3, when the ECB prints euros to buy
European bonds and increasing the size of their balance sheet, and finally when the dollar breaks to move
Tomorrow will be a fun filled
headline risk extraordinaire day. Before the market opens; U.S. Weekly
Initial Jobless claims and GDP numbers will be released. The Supreme
Court will announce their decision on the constitutionality of Obamacare. European Leaders will start their two day meeting in Brussels. Will we see fist fights? The House of
Representatives will vote to hold Eric Holder, Attorney General, in contempt of congress.
The business programs are full of
pundits with opinions on how to trade these events. I just offer that
volatility will increase. The market feels like it wants to move higher
going into the end of the quarter. Large funds can move markets if they
want to, and they want to look good when they report to their customers!
finished watching the Michael Burry Commencement speech you highlighted in MarketToday. Beyond neat. Can I forward MarketToday
to some of my friends so they can watch it?---Long-Term subscriber
John’s reply: Please feel free to forward any of our MarketToday articles to
friends. We try to write good news and source material for
investors and everyone that wants to be current on politics and economics.
Back to Top