Sunday, 13 November 2011

Should I trade my gold ETF?

On Wednesday I got my first emailed note from Moneyweek's John C Burford. It said that thegold price was about to drop. And so it did. Then on Friday he sent another one saying he thought it would drop further. And it did.

The system he uses doesn't look impossibly complicated but should a small-time physical gold ETF investor like me consider using these kinds of methods?

By the end of last week my gold holding was down 3%. It has certainly looked worse but that's no excuse to sidestep the thorny subjects of how, why and when to sell.

The numbers I'm dealing with mean that there has to be some pretty big moves to justify incurring the £11.95 transaction fees from Hargreaves Lansdown. The moves forecast by Burford may have justified it (assuming I timed it right): I'd have got £1977 for my ETFS Physical Gold ETF at 14:20 on 9 Nov 2011.

By 4pm November 10 Hargreaves Lansdown would have paid me £50 less, £1,927 for my 18 gold shares.

As someone who is investing for the long term I feel that any sale should be followed - hopefully fairly quickly - by more buying. And, more importantly, the buying and selling should happen whether a trade works or not.

I'm going to be tied-up more than usual this week but I think I need to set out a proper buying and selling system.

As an investor I expect to sit back and wait for the longterm picture to take shape: an expectation for gold to rise to $2,000 per ounce or more. Unfortunately the recent moves downward have not corresponded with a healing of the global economic picture. In other words my view that gold is an insurance policy or a hedge for my other assets is still not clear.

In The Streets "Gold Brief", Martin Murenbeeld, chief economist at DundeeWealth in Toronto said: "If anything, the fundamentals for gold have been strengthened by everything that has been happening... The game is coming down more and more to the European Central Bank stepping in to stop interest rates [rising] in Italy."

But he added: "Gold's fate is now dependent on how bad things get in Europe. If Europe plunges into a recession and disaster strikes, Murenbeeld thinks that gold prices will fall along with every other asset. "To what degree we are going to create more liquidity -- when that thought is in more ascendancy -- gold will start to rise.""

Why does he think that gold won't work in this scenario?

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