Gold: It Is Not Time

I was at a used bookstore  the other day perusing the business and investing section when I saw a couple of books about the next Great Depression of America. Of course I had to take a look. The arguments in these books were pretty sound, and I nodded my head often…. that is, until I realized these books were from 20 and 30 years ago! These authors (still doom and gloomers today) were predicting a stock market crash right before the biggest rally the world has ever seen. They touted gold during the beginning stages of a 20-year bear market. Right now, they have a tribe of loyal followers – gained from the crisis of 2008- that have no idea how wrong they were for decades.

Amazing.

I’m not saying these guys are stupid. At the very least they were prescient. But remember, this is the money-making business. There is a reason Charlie Munger says ideology is dangerous in investing. And make no mistake about it- if you stick to one view for 30 years even though the market is telling you something different, you are an  ideologue.

Here’s the thing. If I were an adult in the 1980′s, I would have probably seen the national debt and said “gee, this can’t go on forever”. The problems with Social Security were also obvious. But you must be able to disconnect the fundamentals from price action and be aware of the timing of events. And if things aren’t going according to plan, change your plan.

The Correction in Gold 

To be honest, this correction in gold has gone longer than I expected. So what? You adjust as an investor. I’m actually happy about the extent of this gold correction because it’s a lesson for me. You must disconnect your beliefs from how you manage your portfolio. Is our government out of control? Yes. Are we going to default on our debt? Probably. Does this bode well for gold? Yes, if history is any guide. But this doesn’t mean that gold needs to rise right here, right now.  This is what it really takes to be a full-time investor- namely to believe 110% in an asset, but minimize losses when the asset doesn’t trade exactly as you expect.

Fundamentally, gold is a screaming buy. But the market keeps sending the signal that it is NOT TIME for gold. I respect that signal. When it is time to buy, I will scale in on the way up, then take a long vacation.

Gold is trading like it is attracted to $1000-$1100. The dollar is just beginning to break out. Be patient. Gold will probably play “catch-up” like it always does.

Gold September 2014

To become a pro in investing, you have to throw out your pride and constantly learn. 23 year old Moses very well may have bought gold all the way down the past 3 years. In order to justify my losses induced by stubbornness, I would have said that someone was manipulating gold. Perhaps I would have bought a 3X gold long ETF to make back my losses. Do you see how these mistakes compound? This example seems extreme, but I fit this profile when I was younger. I learned the hard way, but I learned.

30 year old Moses thinks a little different. Gold is a negative carry commodity with opportunity costs associated with it. So if you are wrong timing gold, you lose twice. Not good. And when gold is falling at the same time that alternative assets like stocks are exploding, even worse.

Gold is not an obvious buy like real estate was in 2011; we may have to wait 6-12 months for that moment to occur. But first, I am really starting to believe gold needs to crash, big-time. Then, hopefully, if I am smart enough, I will be accumulating when there is blood on the streets.

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  • Babaloo Machado

    I hate to tell you this, but the “market” you’re talking about here is rigged and not an accurate signal for anything. How else do you explain the large number of market sell orders yesterday? The fact that gold and silver have gone down in price for more than 59 Sundays in a row?

    • http://expectedreturnsblog.com Moses

      Hey Babaloo,

      The way you seem to be defining “rigged” can go for any market. That’s the problem. It’s just that hardcore gold promoters are so focused on gold that it appears it is the only market being manipulated. If you read Jesse Livermore’s book, it’s full of manipulation after manipulation in every conceivable market.

      Let’s put it this way: if gold really, truly were manipulated by some powerful group, then we should all throw in the towel because a rally is inconceivable.

  • peterantonellis

    Yes, all markets are manipulated. That’s why you Diversify – 10-15% of retirement in PHYSICAL Gold – Not an ETF…

  • Babaloo Machado

    A bad today for metals and other commodities. Dan Norcini writes,

    “It is therefore rather humorous to continue reading the various
    breathless emails in my box detailing one more nail in the coffin of the
    US Dollar. All the while the currency marches relentlessly higher! One
    wonders how many of these people peddling this stuff ever bother to look
    at a simple price chart.

    Needless to say, the strong Dollar is making for an ugly looking gold chart and ugly looking gold mining share charts as well.

    The volatile juniors are still up for the year but the chart is
    currently negative with the index trading below all of its major moving
    averages and with various technical indicators all in clear bearish
    modes. The index looks to be on track for testing the bottom of its
    range near 32.

    The HUI failed to hold the gap on the chart and is also in a bearish posture at the moment.

    Gold bulls had better hope psychological support at $1250 holds or gold will revisit key support at $1240.

    The Euro continues to fail at one support level after another and
    looks like it is heading to 1.2800. The weaker the Euro gets, the more
    difficulty gold is going to have.”