Pain and confusion for gold doubters like me

As far as I can tell there are two ways of dealing with confusion. One is to do nothing except wait and watch and hope that some kind of decision or useful act emerges from my brain. The other is to do something, anything, and hope it provokes some similar kind of clarity.

I tried the latter one - the acting - back in December and sold everything. Then I decided to switch back into the second one - the waiting - and do nothing. Unfortunately I think I made that switch when the opportunities presented by having cash had just appeared (gold around $1,550 per ounce)... but I didn't take the opportunity, not because I was unsure, but because I switched back into a waiting.

If I've interpreted my mental state right, the switch from acting to waiting took place subconsciously.

Now I'm aware that I'm in waiting mode I think I better learn from my earlier mistake and not move back into acting without properly examining the whys and, more importantly the whens.

As discussed in previous posts I still don't know what I'm doing - or what my motivations have been for doing what I've done so far. That uncertainty exists in equal measure in my personal financial situation (I don't know if I can afford to do this) as well as the gold market itself (I don't understand how it works).

So what is the motivation then? Well, rather than writing it off as some stupid ill-thought-out exercise that has cost me £250 I need to think of the positives. Like for example I am reading Marx and I understand better how currencies work on investments and I think I am working out how to make decisions.

However, all of this is clouded when things happen like they did today - the investment that I don't own, PHAU (ETF Securities Physical Gold exchange traded fund), gained more than 3% after the Federal Open Markets Committee (FOMC) statement said that US interest rates would stay low til the end of 2014.

But does that really explain this move? Michael Hewson at CMC markets said the tone was only slightly more dovish than had been expected. So was it a flash in the pan? Well not according to Scott Redler, chief strategic office at T3Live.com, who told the Street that the rally happened on strong volume, which is bullish for gold despite the fact that much of it came from short covering. "A big move on heavy volume through a downtrend is bullish." Redler is now looking for higher prices in gold (but over what period - he was one of the guys talking about gold at $1,400 when gold fell sharply in December. I need to get my head around how views like his - and mine - have to change as the market changes).

Low interest rates means that the cost of owning gold falls (in comparison to holding cash). And some commentators* say that, low interest rates are naturally inflationary (I'm thinking because more money is floating about the system pushing up prices - which encourages people to exchange stuff and boost the economy).

*Phil Streible, senior commodities broker at RJO Futures told The Street: "Inflation will be created ... [the Fed is] artificially creating inflation for the next couple of years."

Low interest rates, higher inflation, are both good for gold, not so good for someone who doesn't own gold.

But I'm in waiting mode. Everyone expects gold to be volatile in the first half of 2012, may be that means it wont be. However I'm holding out for lower prices at some point and hopefully working out more about gold during that wait.

If I bought today I'd get 10 PHAU shares for $1,086.79 after adding £11.95 trading costs

How does that compare to previous buying and selling? Between 22 September 2011 and 16 December I paid £3,058 for 28 PHAU shares with purchases on three different occasions:

On 12 December 2011 I bought 10 shares for £104.58 each - £1,057.74 in total (after fees).

On 4 November 2012 I bought 10 shares for £108.01 each - £1,092.10 in total (after fees).

On  September 22 I bought 8 shares for £111.98 each -  £907.78 in total (after fees).


On 13 January I was thinking about buying 10 gold shares for £1,062.52 in total (after fees) which is not much worse than my current best buying rate on 12 December. 

But I'm hanging on. If I'm making a mistake at least I'll know it at some point.

I've sold all my physical gold ETF shares

Confusion is not a comfortable state. I think it may be more uncomfortable than getting an investment decision wrong. I will probably find out whether that's true pretty soon as I've sold all my 28 ETFS Physical Gold shares (London Stock Exchange ticker PHAU).

Over the last three months I've paid £3,058 for those 28 shares with purchases on three different occasions:

On 12 December 2011 I bought 10 shares for £104.58 each - £1,057.74 in total (after fees).

On 4 November 2012 I bought 10 shares for £108.01 each - £1,092.10 in total (after fees).

On  September 22 I bought 8 shares for £111.98 each -  £907.78 in total (after fees).

On Friday I  sold them for £100.78 each, a total of £2,809.78 (after fees). That means that my foray into physical gold ETFs has cost me £249 or 8% of my initial gold ETF investment. This excludes my smaller holding of BlackRock Gold and General Fund units which I still hold (down around 9% after three separate investments).



The sale came after three days in a painful state of confusion. One moment I was determined to analyse my situation, the next I was flipping coins in my head, should I buy? Should I sell?

On Friday afternoon I decided to sell. Why? Because I wasn't able to make a sensible argument on what to do either way. In the end I persuaded myself that the safest thing to do was to step back.

On Wednesday the price fell sharply and on Thursday a slight rebound provided time out to try and weigh-up my position. Another small bounce on Friday gave me more breathing space.

But I didn't get anywhere. In the end I decided to sell all my ETF holdings before the close of the markets on Friday. I accept that this may not be a great move but I think I need to learn how to play it safe.

I was concerned about my loses but they were bearable. I was pondering over selling half of the holding, doing nothing and even buying more.

But the safest thing to do seemed to be to sell with a view to buying back in whether the gold price goes up or down. At that particular moment I felt like I had too much at stake and no idea what I was doing. I simply didn't know what I wanted to do in any given situation.

Some of the decision was down to the weekend coming up and over the course of two days I had failed to get anywhere with making a plan. Hopefully I'll find it a bit easier to work out a proper investment strategy with measurable/definable motives for buying and selling when there's less at stake.

Another justification for my decision is that I have limited resources and if something goes wrong with my current £4,225 stake (already down from £4,557) this will seriously limit my ability to move in and out of investments in the future.

Fear of selling 

What has struck me is how afraid of selling I have been even though it appears to be the only safety net.


I think I have been afraid of it because I see it as getting out completely and admitting to myself that I haven't got enough money or knowledge to play around like this.

I also fear that I will miss the start of a rebound, hang back for further falls and get left behind  and not have the will to reinvest.

However I also think this fear could also explain why I may have invested too much too soon. I wanted to make money and prove to myself that I was doing the right thing. My motive for constantly increasing my stake in PHAU and BlackRock has been a proof-seeking exercise. I have done it with no thought of what would prompt me to sell.

So I'm reminding myself there are two parts to this project. The first is that I want to learn about investing, the second is that I want protect myself in these uncertain times.

I will probably have to return to this question several times, but at the moment I am happy with this decision.

Guidance is scarily mixed


None of my views about what will happen to gold are my own. I do not have the skills, time or tools to do proper research. I have no special knowledge about the  health of economies or activities of gold investors in the far east or even next door. In this sense I am blind and condemned to being a follower. On what grounds could I justify deviating from the herd?

So I ask myself if I should take direction from other commentators and whether I am happy doing that.
I have three options:
1. Either I do
2. Or I don't
3. Or I do sometimes.

At the moment option 1, taking direction from other people (if I think they have a better view and more experience than me) seems like a good idea. But there are a lot of people better placed than me to say what is going on and they all say different things, have different resources, styles and investment time frames. It will take a while to get used to them. It looks like experience is the key so, at the moment, the main thing is to stay in the game.

There are people saying gold could go as low as $1,200 but then others say it will rebound next week.

Here are a few.

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.

Last week Peter Grandich clashed with Gartman and other bears saying gold would hit $2000 before it hit $1000 - from Market Watch.

What happens to the dollar will be key. From GATA: US Treasury shorting the dollar? via Gata... but how long will that take?

Something will give as the dollar rises - I don't know what effect it has on the US economy but it usually doesn't help growth.

My decision to sell was also based on my guess that it is more likely that there will be bad news from Europe which tends to knock the gold price.

It also seemed unlikely that there would be particularly bad news from the US over the weekend - which would push up the gold price. Although any announcement about quantitative easing would do it as would any reassurance from eurozone governments that they will underwrite weaker members

But then anything could happen. Events in China, or Russia or less high profile eurozone countries like Slovakia where doctors went on strike.