More navel gazing at Gold ETF Investor: saver, trader, investor?

Comments in the last post suggested that I only buy on 'red' days... like today.

But I'm still not ready yet.


Part of this is because I still believe the price could fall further but this isn't really an excuse anymore, I should have a longer term view. So I'm doing nothing while I work out what I should be doing, for how long and with how much money. (Although, if I'm honest, I know I'm also delaying in the hope the gold price will fall and make a decision to buy easier - and I can't quite accept that this may not be a good idea.)

So for now I'm just gathering up what people claim is going on and views on how and when to buy gold.

What's happening today?


Why is the price going down today? Here's Reuters view  with comments from Michael Lewis, analyst at Deutsche Bank saying current price moves don't have much to do with fundamentals and a note from UBS analysts which expects Chinese demand to fall.

But recent figures on Chinese gold imports have turned most gold traders positive according to Bloomberg.

Gold ETFs seem to be have been down all day in various forms

With the US dollar version looking a little worse as the dollar index rose.

What would I get if I bought now and how would it 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).


If I bought today I would get 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 think I'm going to hang on for now for academic reasons.




My BlackRock Gold and General fund is back to where it was before the price gyrations although...

I did buy a bit more back on November 24 and 25 which didn't match December lows but wasn't such a bad move as my ETF sale may prove to be 

Food for thought on when and why to buy gold

Bill Bonner, writing in Money Week on 6 January said: "And how about gold? Buy it when people predict it will go lower, not when they expect it to rise. Of course, you don’t know where it will go. But when people think it is going down, odds are… it is cheap."

He also said: "We explained yesterday, we don’t think gold is going to go up this year... even so, we should probably expect it to go up again. Because the danger of thinking it will go up is far lower than the benefit of thinking it will down. We don’t know where gold is going in 2012 but the rest of the monetary system could slip into chaos and calamity at any moment. Gold is the only thing we can depend on."

He gave more on prices in an earlier Forbes article where he thought gold could still fall back to £1,200 but I'm not sure if these are still relevant post the December lows.

"Gold is not too cheap at $1,500. At $1,900 it was too expensive.... In the meantime, we’ll probably see a further correction in the gold price…perhaps down to $1,200. Or, perhaps it will stop at $1,400. We don’t know. And it doesn’t matter. Buy gold on dips; sell stocks on rallies."

When Jeff Lewis interviewed Grant Williams (pointed out in a piece by Bron at Gold Chat), he also mentioned the threat of a $1,200 low but I don't know if it still stands since the pre- New-Year lows.

He said: "I suspect going into 2012, the set up for both precious metals is bullish providing they can hold these levels and I think that is important to know. A lot of very good and well-respected chartists worry that gold could correct to 1,200 to 1,400 bucks. And certainly, if you look at the technical pictures, that could happen. Silver could correct down to the low-20s; it absolutely could happen. But it’s important to decide whether you’re a trader or whether you’re an investor. If you’re investing in silver and you’re investing in gold, based on the fundamental reasons to do so, then falls to the price aren’t that much of a problem for you because they give an opportunity to buy more metal at cheaper prices. If you’re a trader, it’s a whole different world and you have to be very agile and you have to be very attuned to moves like this that could go significantly lower.

But then on 3 January 2012  John Embury at Sprott Asset Management told King World News: "When gold broke through $1,000, I said it would never trade below $1,000 again and it hasn’t. I now think that, unless we have a complete and total financial collapse in the world, I would be surprised if gold ever traded below $1,500 ever again."

Identity crisis at Gold ETF Investor

The first comment to appear on this blog has caused an identity crisis! It's not the first identity crisis here, but it's the worst so far.

I thought I was being matter-of-fact about my approach here but I can't really justify much of it to Jeanne D’Arc who provided some much needed constructive criticism. I'm still attempting to put together a coherent response.

The key observations were: “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%.”

And yes, that’s what it looks like, but it didn’t feel like that at the time! I’ll try and explain myself.


The advice:

1. "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."

2. "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."

3. On the question of buying back in Jeanne said: “your only question 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.”

But I haven't bought back in and I don't know if gold will be higher or lower in a year! So what am I doing looking at gold as an investment?

I hope that the time I'm taking to answer this won't turn out to be an attempt to rationalise my way around these genuine issues. The problem is that I don't think my case is totally straight forward but that's probably what everyone thinks.

I'm finding this recent post by FOFOA helpful: The Studebaker Effect

It starts off with these gentle encouraging words:

"I never want anyone to invest in anything based merely on a recommendation. I want them to understand the reasons for the purchase themselves. Peace of mind can only come from within, and that's what understanding can provide."

I don't have that peace of mind yet.


"Have you noticed how many people think they are traders and investors these days? And with all the options to invest in and trade out there, who can blame them? But in reality they are not traders or investors. They are doctors, lawyers, businessmen… and savers. What we call investing today is more like speculating. So why do we "save" the way we do today, by speculating on things we know so little about?"


"A saver is different from an investor or a trader/speculator....

(But)

Today the system is in transition, so you can throw your ideas about these differences out the window. There is no safe medium for simple preservation of purchasing power when the entire system shifts from the old normal to the new normal. When systems implode, the safest place to be pays off big time!"

I'm hoping to work out where I stand on these things too. Meanwhile the gold price moves up and I don't own any.

Gold gains more than 1% but will it continue?

The gold price gained more than 1% this morning. It's a bit unnerving for someone waiting on the sidelines hoping the gold price will fall far enough to justify selling in December.

But here's what seems to be happening today: the euro rose against the dollar but commentators tell Reuters it's not a longterm trend and Indians started buying gold again (Reuters again).  I try to get my head around both of these issues below  - the Indian buying story may not be a longterm one yet either.

But it seems no one really expects much real movement on Europe until the results of Spanish and Italian bond auctions on Thursday and Friday. Is there any reason to buy gold before then?

Well the gold price shot up today:

The gold ETFs I do not own gained too -

As the falling dollar played a big part in the gain any changes in the pound sterling denominated PHGP looks a bit less impressive/painful and these are the changes you'd get if you owned PHAU, the dollar version anyway - which is what I'd buy. The Bloomberg dollar index chart shows the dollar moving lower. (Reuters said this was due to short covering on the euro:"Traders said there was no fundamental reasons for the short squeeze in the euro with news out of Europe continuing to paint a dreary picture.")

The pound moving in the same direction as the euro - up today (the green figures above the chart) but moving downwards over the last month (the chart). It's opposite relationship to the dollar is likely to get stronger? (Reuters story: )




Adding to a list of gold watchers who think the price of gold is more likely to fall than rise in the short term appears to be Perth Mint's Bron Suchecki (also Gold Chat) whose negative views included the effect of MF Global: "This is not necessarily negative in the long run, as these investors may instead opt for direct physical investment, but in the meantime any contraction in leveraged paper positions puts pressure on the gold price."

The other key factor he cites is Indian gold demand: "Physical Indian ounce demand will return eventually but in the short run the situation  continues to be negative, with Reuters reporting Prithviraj Kothari as saying "Still prices  are high. Interest rates are high. Liquidity is tight. I think imports in the first quarter of  2012 will be 50 percent lower than last year."

Although he adds that there is some pick-up of bar demand and that a change, when it comes, will be very fast.

Just this morning Reuters said dealers in Mumbai said a drop in local prices to a one-week low was used to stock up ahead of wedding season beginning later this month. Harshad Ajmera, proprietor of JJ Gold House in Kolkata said: "Buying will continue until March."

It also said India's central bank has allowed four more banks to import precious metals which would boost competition and help reduce premiums.

In the same report Reuters quotes Macquarie analyst Hayden Atkins who said "A big part of the weakness into the end of the year was people taking profits and liquidity being a bit lower."

He said that the end of this process might explain why an inverse correlation between the dollar and the euro/gold.

"I would expect that to unwind, and maybe that's why we're seeing stronger gold even when the euro is tending to weaken. You don't have that length there any more." He told Reuters he expected gold's inverse link to the dollar to drive prices in this year.

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.

Holding on and not buying yet... a bad idea?

I still haven't bought back any gold ETFs and the price of gold is notching up higher. May be a mistake but I've got to make a few.

Yesterday Dennis Gartman told CNBC he should have bought when the gold price fell between Christmas and New Year.

But others, like Jon Nadler of Kitco reckon gold will hang around $1,600 and could go either way and is waiting for eurozone bond auctions next week and also to find out how much funds will be buying when they reallocate on 7 January (I don't know what that's about).

Earlier in the week Anthony Neglia of Tower Trading expected gold to carry on downwards and wasn't yet looking like a safehaven. But said above $1,625 could be the start of a bigger rally.

It hit $1625 a couple of times today. But eurozone and jobs data from the US could make Friday interesting - there was already some good jobs data on Thursday.

BullionVault: Another gold price rollercoaster

Gold: should I believe the parameters set by the experts?

This afternoon I could have bought back all my gold shares for less than I sold them on 16 December, including costs. 

Back then I sold my 28 ETF Securities Physical Gold ETFs (London Stock Exchange ticker  PHAU) for £2,821 plus the cost of trading (£11.95) which meant I got £2,809.75. I could have bought them all back for £2,794.59 - saving myself £15 or around 0.5%.

This was after the price of gold in US dollars fell nearly 3% today although it was down just 0.75% in pounds sterling (Google Chart) The ETFs - PHAU AND PHGP - seem to have had a choppier time than the spot price that could just be a technical difference between Google Finance and BullionVault's spot price chart (although spot price is not an exact science).

Physical gold ETF performance on the London Stock Exchange:

The spot price (over six hours) from BullionVault:

Meanwhile the dollar index from Bloomberg rose today

And the pound fell more than 1% against the dollar (Google Chart).

What happened today? 

I haven't spent a great deal of time trying to work this out. Apparently the movers of the gold price included an Italian bond sale that went well and less gold and silver buying in India and China (according to this from BullionVault which includes details of what's going on in the Indian market). This report from The Street mentions all of these - claiming the successful bond sales lessened the chances of more money printing in Europe as an explanation for gold's performance. 

But this piece in the FT suggested that the auction was pretty much ignored as investors worried more about banks using the European Central Bank lending facility and another Italian bond auction due tomorrow (Thursday). Compare this to before Christmas when a successful Spanish bond sale moved gold prices (Forbes on effect on stock markets, Reuters on Spanish bond sale effect on gold) Both suggested that good news for Spanish debt sale was good for gold. 

What do I believe now?

What is the story I am acting on now? It isn't a story I made up myself it came from the guys who prompted me to sell - some of them listed at the end of this article about selling my ETFs - and, as far as I can tell it goes like this: the fear around the eurozone crisis will grow and the situation will unfold like a slow motion car crash. Whatever the outcome the build-up will be a loss of confidence in the euro and the eurozone.

This will accelerate the flight to safety that we are already seeing to the US dollar. The rising dollar will force down the price of gold.

At the same time investors have seen that gold now moves up and down pretty much in line with other riskier assets like shares and commodities. Both of these factors help people like me believe that if the financial system takes another big hit gold will fall along with everything else before it recovers.

As far as I can tell this is the story I am being told and it is the reason why I sold my gold shares. The fact that I have sold all my gold suggests that I think I understand their argument and believe it and, therefore,  I am confident that I know what I am protecting myself from. 

But... 

Investors like me depend on commentators who have been staring at the controls of the financial system for a couple of decades. I can't work out if their view is too narrow, a bit like relying on the geologists who tracked the Japanese tsunami to predict that it would turn into a nuclear crisis? 

The course of events appear very neatly foretold and the actions required of people like me are not complicated. 

Essentially the investment plan for gold investors who believe this story is to hold very little gold up to the point of disaster... a eurozone crisis... and not to buy until gold has suffered the worst of sure to occur losses but before the next catalyst for buying... like a fall in the value of the dollar, QE.

But all of this excludes not only other interpretations of what may be going on in the financial system but also significant events beyond these boundaries. How can leftfield events and possibilities be left out, such as the US government taking the advice of people like Don Coxe who says it should buy gold for $2000 and sell for $2,200 with the aim of capping its price?

I have swallowed the parameters set by gold experts which may not be such a big problem but I don't think I had realised that before. I had accepted their goal posts as the only ones. 

May be I should remember that I own gold for protection, not specualtion, but does that mean I should buy back some more now? And does my holding of BlackRock Gold and General count at all?

Gold: "go to the bottom, as a thing not worth saving"?

Melvyn Bragg and guests were discussing Robinson Crusoe on BBC Radio 4's "In Our Time" this evening.

The academics on the show said he was a kind of "everyman" filled with the fears and phobias of the average human being. So how realistic was his reaction to finding gold on his shipwrecked ship when he knew he had no need for it?

Daniel Defoe wrote: "I had been now thirteen days on shore, and had been eleven times on board the ship; in which time I had brought away all that one pair of hands could well be supposed capable to bring…"

But as the wind began to rise he decided to make another trip during which: “I discovered a locker with drawers in it, in one of which I found tow or three razors, and one pair of large scissors, with some ten or a dozen good knives and forks; in another I found about thirty pounds value in money; some European, some American, some gold, and some silver coin.

“I smiled to myself at the sight of this money: o drug! I exclaimed, what art thou good for? Thou art not worth to me, no not the taking off the ground; one of those knives is worth all this heap; I have no manner of use for thee; e’en remain where thou art, and go to the bottom, as a thing not worth saving.”

“However, upon second thoughts, I took it away, and wrapping all this in a piece of canvas, I began to think of making another raft…” but didn't due to the rising storm and carried the gold with him despite the problems the extra weight caused him.

Violent gold thefts hit UK's Asian community says BBC

According to a BBC investigation the rising price of gold has sparked a number of violent robberies in Yorkshire's Asian community targeting wedding gold.

The written introduction for the half-hour-long radio show (broadcast last week) said: "As a result of the fear of this crime there is now a long waiting list for safety deposit boxes - as an alternative those with extended families try and ensure their homes are never left empty, whilst others are buying CCTV systems or working out what to hide where. According to the police it isn't just burglaries - the gold is also being snatched in streets robberies where Asians are being targeted and in a recent cases a newly married bride was robbed whilst at the wedding celebration itself."

A number of wedding gold robbery victims are interviewed and the ease with which stolen gold can be sold via online gold buyers is also discussed.

As a gold ETF investor I don't really care about the gold itself, I'm never likely to see anything I own via exchange traded funds. My focus is on its financial value. 

In fact I sold  all 28 of my gold shares a couple of days ago out of fear that the price of gold might fall as low as  $1,200 per oz. I aim to buy them back but that's not the same for people who own gold for other reasons.

I do own a gold signet ring which a number of local pawn shops valued at around £40 and I think I'd be quite upset if I had to sell it or it was stolen.
   

ETF frenzy for private investors: gold included

Ten of the top 20 shares traded by clients of FTSE 100 broker  Hargreaves Lansdown were ETFs (exchange traded funds). The majority of these were ETF Securities commodities products and the most sold and the most bought of these was ETF Securities Physical Gold sterling (PHGP) which is exactly the same as PHAU.... except it is more expensive to trade. (Both are  automatically converted into sterling when sold.)

PHGP made up 2% of deals bought while PHAU was 1.2% on 19 December.



On the  selling front PHGP made up 3.5% of the value of all shares sold through Hargreaves Lansdown while PHAU made up 2.3%.



I don't know if I'm missing something but it looks like clients of Hargreaves Lansdown are mostly private investors and they mostly buy and sell the sterling product. But the dollar version has more assets under management, presumably institutional investors, who pay less to own it. Some people are trading chunks of PHGP shares worth more than  £1 million. If they bought and then immediately sold they would lose £2,000 if they did the same with PHAU they would lose £800.


For PHAU the spread was 0.08%:

While the spread for PHGP was more than double that at nearly 0.2%:

Today one the largest trades in  PHGP was over £500,000 but on Thursday 15 December some were around the £1 million mark.


19 December 2011

 15 December  2011

Meanwhile my holdings are bereft  of ETFs  after I sold them all on Friday. But today BlackRock Gold and General fund's unit price showed gains today when it was valued at midday. But that was before Canadian markets opened which saw Eldorado - 3.3% of the fund according to its latest factsheet (October 31- when is a new one due?) -  drop by nearly 13% after acquiring European Goldfields.

Gold ETF gains in Australia but gold miners tumble

I sold my ETF shares on Friday and kept my BlackRock Gold and General units (although I couldn't have sold them as I have to put in the sell order before 8am).

Early trading in Australia isn't casting a warm light on the decision. Not only is ETF Securities' Australian gold ETF (GOLD) up more than  1%.

Newcrest Mining, the largest holding (8%) of BlackRock Gold and General is down nearly 3%.

(Google chart link)
(Bloomberg dollar index)
(BullionVault spot gold chart)
The week before Christmas could feel like a long one!

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.

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.

Gold keeps falling: buy or sell?

It's difficult to work out a sensible short-term course of action. I have now invested around £4,500 into gold and gold companies. That initial investment is now worth around £4,300.

Of that I have £2,900 invested in ETF Securities physical gold exchange traded fund PHAU (the value of that investment is now down from £3,057) and I have another £1,440 invested in the BlackRock Gold and General fund (down from £1,500).

So far I have not sold anything. I would like to sell something soon, just to get used to the idea.

But I want to sell higher than I have bought and at the current level that is not where things stand. I could either see it as a buying opportunity or a signal to sell before gold falls further.

Two days ago I was thinking the same thing. I bought £1,000 at the lowest price I have managed so far, the question is whether I want to carry on buying as the price drops or sell as the price drops.

Today's fall (link to google chart above) - PHAU is down nearly 2% while PHGP, which is a closer tracker of this investment in sterling terms is down 1.5% - appears to be on the back of renewed confidence in the US economy and diminished likelihood of more quantitative easing. (Although that appears to have been tempered a little.)

This hit gold on two fronts as far as I can tell. One is that more QE means that there is greater suspicion of currencies - money printing undermines the value of currencies and increases demand for gold and bolsters confidence in people who already own it. This hasn't happened.

It also means that investors, who have been expecting QE to boost share prices (because it encourages investors to move cash from less risky assets into riskier ones like shares) will have been disappointed too.

Any damage to equity markets has tended to lead to falls in the price of gold.

So good news in Europe would help gold and bad news in the US would help gold. We're getting the opposite at the moment plus quite a lot of negative talking which has a pretty big effect on people like me.

Experienced gold investors like Dennis Gartman are saying things like this about the direction of the gold price: "Lower, we fear and perhaps decidedly so. So much damage has been done to the psychology of the market in the past week and so many late longs have been caught off guard that we think wholesale liquidation … and perhaps forced liquidation … shall be the outcome."

Apparently this will have sent many investors running for the exits.

Gartman said: "We can imagine gold trading back toward €1075-1125/oz and/or toward US$1475-1525. It really won’t take much to push it there. Panic liquidation would do so rather swiftly. We’ll simply stand aside from the gold market then, preferring to be long of gold and not wishing really to be short of it. The sidelines seem the cozier of the two."

But it's not like he hasn't said similar things before and been wrong - in June 2011 he said gold could fall swiftly to $1,480 an ounce when it was trading at $1,527.

A week later he had reversed his position buying more gold. But that's not a good basis on which to ignore his words.

Some other views of well known gold investors outlined here by Neoclassical Economist on Seeking Alpha - mainly negative (Jim Rogers, John Paulson) - not like the author or other gold 'guru'Jim Cramer.

Other interesting stuff: FT covers news that gold ETF holdings are at an all time high.

For now I'm not making a decision about anything. I'm going for lunch with Dad.

Another £1000 on PHAU gold ETF... bad move?

I just bought another 10 ETF Securities physical gold shares (London Stock Exchange ticker PHAU). I bought them on Monday 12 December 2011 around 3pm. That means my total holdings of PHAU now stands at 28 shares. All together these 28 shares cost me £3,057.62 to buy but are now worth £2,939.34 - down 3.87%.

The shares I bought on Monday cost £104.58 each before fees or £1,057.74 in total (after fees).

That is the cheapest I've managed to buy at so far but it is far from clear that this was a good move!

There seem to be lots of different arguments over whether the gold price will go up or down from here. At some points today PHAU and PHGP were down 3%.

On 4 November 2012 I bought 10 shares for £108.01 each at a total cost of £1,092.10.

The first time I bought was on September 22 when I bought 8 shares for £111.98 (before fees), at a total cost of £907.78 (after fees).

Two ideas.

I'm going to find out what happens if I step up my trading. At the moment I do one or two trades a month. This is a good thing in terms of keeping costs down but it means that I don't know yet what it's like to sell. I think that could be a big problem if I find out I'm afraid of selling when the gold price starts moving downwards. If each trade makes money - or the overall effect is money making then there's an option to carry out 10 trades before the end of December which will mean that the costs of trading will fall to £8.95 per trade through January. If I think I'm getting anywhere with it I can then shift up to 20 trades per month (unlikely as 20 times £8.95 is £179) which would push trading costs down to £5.95 each. It may become very obvious that this isn't a good idea very quickly - or that may be I need a more volatile asset to trade to make it worthwhile.

The second plan is to find a decent US fund that might help offset the euro/sterling problems that a UK gold ETF investor has. But it might take some work just to explore whether this option will actually help.

Spreads, sterling gold vs dollar gold

As the eurozone summit progressed today the performance of ETF Securities' sterling denominated (PHGP) and dollar denominated physical gold ETFs (PHAU) diverged, as did their spreads (although I'm still waiting to get a proper breakdown of these from ETF Securities.)

When I looked around 2pm today PHAU shares had a 0.04% spread (the difference between the price at which I can sell shares and the price at which I can buy them)

While PHGP had a 0.2% spread. Although they're both small figures, that is a five-fold difference.

Today PHAU was among the top ten shares bought by Hargreaves Lansdown clients making up 1.3% of the value of all shares bought.

Whatever the political outcome of the eurozone crisis and the summit, it was never likely to suit everyone involved. All parties want a solution of some kind but will employ brinkmanship to make their voices heard. It is ongoing.

Something happened but what it was is still unclear.From the point of view of an under resourced gold ETF investor all I could see was this divergence of paths between sterling gold and dollar gold earlier today.

Dollar denominated gold gained while sterling denominated gold fell. That means that my dollar denominated physical gold ETF (PHAU) gained nearly 1% but if I had sold it, the dollars I would have got from the sale would have been automatically converted into pounds sterling.

And pounds sterling, as well as the euro, gained against the dollar as the build up to the summit results went on before settling back in the aftermath - as did the gap between PHGP and PHAU.

That's the way the ETF works. So my actual return would have been more akin to the sterling denominated ETF PHGP. In effect, the dollars I made from gold would have been swallowed up by the dollar falling in value against the pound.