Wednesday, 14 December 2011

A grateful gold victim

This morning I wrote a post saying I needed to work out whether I should buy or sell as gold prices fell.  I couldn't make up my mind and headed off to meet my dad for lunch.

At the time the loss showing on my account was £216 but, by the end of the trading day when I next looked, that loss had grown to £360. The 28 ETFS Physical Gold shares (PHAU) were down 8.58%, or £262. Meanwhile the BlackRock Gold and General fund units were down 6.6% or £99. 

The BlackRock fund is really down quite a bit more than that though as it would have been priced at midday, before shares like Fresnillo took the worst of the damage (Fresnillo shares fell 11% although some of the damage was due to going ex dividend and new rules announced by FTSE - although Google finance shows a big rebound late in the day) 

Gold price news was all about the strength of the dollar hurting commodities across the board with the usual talk about gold's safe haven status being ruined because of its volatility which unnerves potential and existing investors... like me! But Bloomberg reports that gold ETF investors are still hanging on.

Below are a few charts showing the performance of the dollar index against the world's largest gold ETF the SPDR Gold Trust (GLD) using Bloomberg charts.

Over one month it looks like an inverse relationship of note

Over three months that still holds:

Over six months:

Over a year:

And over three years: 

If gold drops from its current £1570 level to $1,500 per ounce that would be a further 4.5% loss while a fall to $1,400 per ounce mean an 11% fall from its current level. For my portfolio that would  mean a loss of another £307 just on the ETF adding to a loss of £668.45 or 21.9% on the original £3,057 investment. 

That's a scenario mentioned by a number of commentators like Dave Lutz and also by Dennis Gartman - although he's said similar things before - and even though this is a bit more positive from Gold Seek, the $1,400 level is not ruled out.

I'm still not sure what to do but may start selling tomorrow. I suppose I should be grateful that this moment of doubt has come sooner rather than later and will force me to get a bit more comfortable with my own views.

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