PNL Personal Assets Trust - some guidance on why I own gold

There were two views on the gold price dropping down today (PHGP down 2.5%):

- on the one hand the gold bugs point to a 'paper-based' assault on the gold price last night: http://www.zerohedge.com/news/2013-09-12/vicious-gold-slamdown-breaks-gold-market-20-seconds?source=email_rt_mc_body&app=n

- on the other hand the gold doubters point to the increasing likelihood of the Federal Reserve tapering off its quantitative easing. In this BullionVault piece analysts suspect more price falls with little chance of this being offset by Indian Jewellery buying or inflation picking up
 https://goldnews.bullionvault.com/gold-price-091220131

Sebastian Lyon at Personal Assets Trust (PNL) said in an interim management statement (August 16):

Gold ETF Investor market report: 2 November 2011

This isn't really a market report. Here's what some other people are saying. You could spend a lot of time reading it - but would it help?

A general goldy newsy piece from Reuters: Gold rises on deepening eurozone crisis which included this on ETFs:

"In ETF flows on Wednesday, gold holdings were up by just over 11,000 ounces after an inflow into the COMEX Gold Trust.

"Last month, global holdings of gold in ETFs rose by 852,000 ounces to 67.907 million ounces, more than offsetting the 444,000 ounces outflow in September and the 297,000 ounces outflow in August."

MarketWatch: Gold could go up but platinum will go up more

OilnGold: Dont bet on it, gold could go down a bit more

Gold investing news: Lots more people could invest in gold soon - China makes gold owning easy for its citizens (opposite of what happens here).

Harvey Organ: Says that gold and silver prices were pushed down by the big short sellers - but suspects it'll have backfired (I still don't understand how the bear raid stuff works.)

There's loads of stuff in the Harvey Organ post including this from

ZeroHedge: How US banks are lying about their European exposure, an article saying that if anything else goes wrong it will test whether interconnecting deals between banks adds up to a safety net (hedge) or a bad bet (melt down).

ZeroHedge points to "MF Global for example, which filed bankruptcy precisely due to its hedged (?) European exposure - luckily MF was not in the business of writing CDS on European banks or else all hell would be breaking loose right now."

He applauds this Bloomberg piece which said U.S. lenders exposure to Greek debt via CDS (insurance against default) rose by $80.7 billion to $518 billion in the first half of 2011.

Too much too soon

But this is all too much for me. I'm still wondering how, why or when to buy more of a physical gold ETF (PHAU).

Yesterday I nearly bought some more. I didn't do it and tried to blame my broker.

But it was me - and the situation bought up very basic issues that I need to address.

Like how long can I go on deluding myself that I have a strategy?And why have I bought gold when I can't honestly answer these simple questions:

a) Is my aim to build up a stake in gold because I think the world is about to collapse?

b) If so, why don't I just put cash in it now?

c) How much of my cash am I actually talking about?

d) Once I've put it in, do I have any idea why or when I should take it out again?

But then the panic wanes a bit. I remember that I started off knowing that I know nothing and I shouldn't be terrified by other people knowing lots more than me.

I also need to remember that I've bought gold because otherwise I wouldn't bother looking at it.

But what did I learn from yesterday?

1. It's never going to be obvious when to buy and when I have bought it will feel like I made a mistake until its obvious that wasn't a mistake which could be never.

2. I've got to make up my mind if I'm pound cost averaging or not... if I am I should have bought PHAU at around 11am on October 22, a weekend but I would still have got a better price than now whether I'd bought before or after.

However, I don't really want to buy automatically because the reason I'm doing this is to force myself to pay attention.

3. So, if I'm not pound cost averaging, what am I doing? Should I be buying on dips (investing - catching falling knives?) or following trends up (trading - chasing bubbles)? I don't know. I need to do some reading!

4. Volatility - do I really need to think, every time I miss what looks like a low, that it was my last chance ever?

5. I need to stop looking for information to justify what I've done. I need to find out if I am doing the right thing, not prove that I am doing the right thing.

This all sounds like something out of a self help book! Find yourself - buy gold! Or am I already turning into Gollum?

October 19 2011 gold ETF investor report: what's going on?

Yesterday (October 18 2011) the gold price fell and, subsequently my physical gold ETF (PHAU) shares closed down more than 2%? They've recovered a bit but what happened?

A link to the Google chart of the 18 October 2011 fall of PHAU

A story from Reuters said: "Gold fell for a second session on Tuesday as investors worried about slowing Chinese growth, a warning on France's credit rating and dimming prospects for a solution to the euro zone debt crisis."

To me these are all "known unknowns" - If one expert says one thing I believe it until another expert contradicts it - I have no evidence of my own.

But on Tuesday what I didn't understand was that all of these known unknowns were saying that everything looked bleak for the world economy. So why didn't gold, the investment of choice for fearful people like me, rise on this news?

Was it the same thing that happened last month when the gold price fell alongside share prices on stock exchanges around the world? That fall prompted me to buy my PHAU shares on 22 September. (Markets and gold fell further on Friday 23 September - the day I bought my units in the BlackRock Gold and General fund - and then fell a great deal more on Monday 26 September: here's a Google chart of the fall.)

What were the reasons given for the falls in September? There were some who said it was because the price of owning gold futures was raised (margins) by 21% on Wednesday 23: story in Forbes and Zerohedge. There was a different suggestion from CNN saying it was deflation fears. And then a lot of people were buying dollars (see chart below) as investors looked for a safe haven... but not gold.

I feel I need to understand why gold is moving in the same way as shares when, up until recently, it tended to move in the opposite direction. I also need to have view on whether this new relationship is likely to continue. Unfortunately I can only ask an expert and hope I get the right answer.

For now I'll go with some comments from the Reuters story which pointed to research from CitiFX (part of Citigroup) who said they expect gold to rise above $2,000 an ounce after a correction (the current falls) and eventually trade as high as $3,400.

It said "Gold has gone from being a protection against 'risk off' to a 'risk-off trade' in itself ... We still believe that this market nervousness has further to run in the coming weeks or months" (In other words people don't seem to buy gold to protect themselves anymore.)

The story also points to independent investor Dennis Gartman who plans to halve his gold positions, citing bearish technical signals and prospects of margin-call selling.

All this technical stuff... and I still can't get my head around what's supposed to happen in normal times.

When it is put up against the FTSE 100 over the last year it looks pretty clear that the physical gold ETF generally moves in the opposite direction of the stock market. When share prices rose gold fell and vice versa (click on these charts to enlarge - unless your eyes work properly)

I've included what I hope is a version of this dollar index - bascially the global value of the dollar. This is the value of the dollar against a basket of currencies - I could only find it dating back to April 2011 so that's where I've gone back to.

The relationship between PHAU and the FTSE seems to be changing. A look at their percentage changes appears to show some kind of a change - in September and October they move together more often.

But then there doesn't seem to be much of a change in the relationship between PHAU and the dollar index, other than gold getting a lot more volatile - but that's just from casting an eye over it. I'll have to do something a bit more scientific to find out for sure.

I don't think any of this is going to help me... but I've got to start somewhere.