Sunday, 8 January 2012

Gold price falling on Monday

Some newer negative views: updated Monday 9 January afternoon.

Mineweb including comments from Marc Ground at Standard Bank: "the speculative market remains wary of gold's prospects."
Jim Wykoff remains a gold bull and also believes that it will start behaving like a proper safe haven soon but said the rise of the dollar and "the bulls have more work to do in the near term to suggest an uptrend in prices can be sustained. Prices are still in a two-month-old downtrend on the daily bar chart."

TF Metals sees gold possibly heading back towards $1,565.
John C Burford thinks it may go as high as $1,640 before falling again
Clive Maund expects the price to fall a lot further
Jeff Clark just says the bull case still intact but expect volatility
GM Jenkins on Screwtape files says: I'd be surprised if this is a good week,

Jenkins had some interesting thoughts on conspiracy theory stuff too after signing up to GATA's "Le Metropole Cafe" saying: "I kind of looked forward to hammering them here for talking shit with such confidence, but they turned out to be dead on. Let's see how they do this week."

Where I stand

Should I buy back at least as many physical gold ETF shares I sold on December 16? Am I still waiting for the price to fall?

Is it still a good hedge against the value of my home and the health of the UK economy?

I think the answer to these may still be yes but none of my views are written in stone. This feels like it will be a slow process of building up experience. For now I will try to play safe, just so I can find out if there really is a safe way to play.

I have already lost £250. I don't have a great deal of cash to play around with and I want to survive for as long as possible.

I am also trying to keep my thought process as simple as possible so I can keep track of them.

The temptation is to go with each new idea as it arrives which I do at every opportunity because it diverts me from the reality of what I am doing and the decisions I need to make.

If I reinvested now and the price rose I could make back some of my losses. Even if the price fell a bit I could justify buying now because most analysts still think gold will go above £2000 some time this year.

But I don't feel that this is the safest bet because it would mean buying back my gold and risking more losses.

Why do I see this as riskier than missing out on sudden rise in the value of gold? It's because I think recent price moves show it has been safer to be out of the market than to be in it.

The gold price hit a low of $1,523 on December 29. That wasn't as low as some commentators had  been expecting -  some saw it going as low as $1,200 but more likely $1,400 (see below).

In sterling terms PHGP, the physical gold ETF priced in sterling, fell to a low of 9711.7p. On Friday last week it closed at 10,320.5. That's a 6.2% gain.

I sold my gold ETFs (the dollar version PHAU) on December 16 and was left with £2,809 of an original £3,057 investment (a loss of £248 or 8% since September 22 when I made my first investment.

But I didn't sell at the absolute worst time.

If I had held onto those shares they would now be worth £2,899
(10,320.5 x 28 (the number of shares I originally owned) = £2,889)

That's only a gain of around £80. So if I had held onto them I would only be up 3% on the current position.

But I don't think that is a sensible way for me to look at this.

I sold my shares so my position changed. In my view I am safer.

Now I need to work out what I have done and what to do next. Some of this will involve finding out where I have made mistakes or missed opportunities. But I suspect I don't have the experience to do that usefully yet.

I don't think selling was a mistake because the gold price fell. I just failed to buy back before the prices rose more than 6%.

The question now is whether I see still see that decision not to buy back my shares as a mistake?

Either I still believe the story that the gold price will fall or I need to take a new position. If it is the latter then I need accept my losses and start from scratch again - ie reassess my views on whether the price of gold will rise or fall and whether it is a good hedge against the value of my home and the health of the UK economy.

The fact though is that I don't know if I am continuing an old strategy or starting from scratch.

I don't know how to make that decision because I am still learning and still relying on others for direction, probably too many others.

A lot of different people have put together a lot of different stories about why the price has moved as it has.

Gold price was dropping in early trading.

The original views I followed when I sold.

Scott Redler, chief strategic officer at T3 Capital interviewed on Bloomberg pointed out by Plan B economics, said gold was in an identity crisis adding that it could fall to $1400 or even $1,200.

Jim Sinclair and Eric de Groot think gold will rebound and engage with some of the bearish views like those of Martin Armstrong: "The fundamental mantra about fiat currency is getting old. The market is poised for retest of the 1225-1325 area going into 2012 which is the key support."

Dennis Gartman in Forbes: "He explained when gold collapses or falters into that $1,300 to $,1400 area, and if it shows sign of holding, then he’ll probably get his feet wet again on the long side and be a buyer.


  1. Selling based on Gartman!?!? Oh dear, oh dear, oh dear. Even perma-bears know that Dennis Gartman is a contrarian indicator. When he says "price about to plummet", you buy. When he says "gold to da moon", you sell like there's no tomorrow...

    Far, far better to follow my esteemed colleague, GM Jenkins at Screwtapes. At least he knows one end of a chart from another... ;-)

  2. Thanks a lot for the contact (the first genuine comment on this blog!) and I'll keep an eye on GM Jenkins for sure but there's no escaping that I've got a lot of learning to do!

    My problem is that I keep deluding myself that I know something and and then look for people to confirm whatever it is that I've told myself - like I want the price of gold to go down because I want to buy in again. So what do I do? I seek out the people who say gold is going to fall.

  3. Hey, we've all been there. It's called 'confirmation bias', and no-one is immune. It's always tempting to side with those whose views match what we want to happen. But it's a dangerous phenomenon - and the reason so many lost a packet in the silver mania crash last year.

    Look, please don't think I'm being patronising if I give you a bit of friendly advice. Your blog is called "Gold ETF investor". But you're not behaving like an investor at all. You're speculating. Worse, you're gambling. You keep trying to pick the short-term direction of the market, and probability says you can only be right 50% of the time. Sod's Law says it'll be less than 50%.

    If you want to be an investor, then INVEST. Do your research and try to identify a market which you think is in a bull phase. Gold appears to be one such market (it certainly has been for 11 years). Then invest in it. And sit.

    Once you've made your play, don't sweat the day-to-day up and downs. You're an investor! If you're confident that it's a bull market, then you should be confident to wait for your return in one, two or three years, or whatever.

    If you keep trying to chase the market - buying on up days and selling on down days - then all you're doing is wasting your money on commission, and a whole lot more besides. You're just picking red or black every day on the roulette wheel.

    So - your only question (re buying back in) should be: will gold be higher in one year's time? If it's no, then think about shorting the market. If it's yes, then buy (on a down day!) and sit it out. This advice goes for anything - gold, oil, bank shares, bonds, whatever.

  4. I don't think you're being patronising. That all makes sense and is helpful.

    It's too late at night for me to put together a proper reply but I'll have a go in the morning.

  5. I've tried to explain why it's taking me so long to answer your questions/observations - or say where I stand in relation to them this latest post: