This week, I'm dishing on volatility, an increasingly less precious metal, and a sorely mistaken Fed chairman.
"Fear" We Go Again?
Political infighting in the United States and renewed debt concerns in Europe -- just like in August 2011, that's all it took to spark a 200-point, single-day plunge for the stock market and put a fire under the so-called "fear index."
But don't panic. Even though the Volatility Index (VIX) spiked 33% in a single week, it didn't get anywhere close to the levels hit in 2011 (above 40). Besides, it's already settling down again. If you're still afraid that volatility is going to return with a vengeance, check out my colleague Karim Rahemtulla's previous musings on the topic. You'll soon discover why hyper-volatility can be an investor's best friend.
Quick, Dump Your Gold!
Last week, I pooh-poohed the idea that a dreaded technical indicator (the death cross) was to blame for gold's sudden drop. Instead, I showed how the decline in prices was more likely due to decreased demand. Lo and behold, this week I have all the evidence I need to prove that it's all about the fundamentals.
According to Goldman Sachs' latest analysis of 13-F filings, hedge funds dumped their holdings in the most popular gold ETF, the SPDR Gold Trust (GLD). Even George Soros got in on the action. Net-net, hedge fund exposure to gold via the ETF is down more than 50% over the last six months.
Last week, Rahemtulla mentioned that the long-term outlook for gold is still bullish. But for now, tread carefully!
You Want Fries With That Whopper, Bernanke?
Speaking of gold, Fed Chairman Ben Bernanke got into a heated exchange with Senator Bob Corker (R-Tenn.). At one point he boasted, "My inflation record is the best of any Federal Reserve chairman in the post-war period, or at least one of the best."
I know the government likes to measure inflation in a somewhat questionable manner via CPI. However, if we use a metric that's not manipulated -- like, say, gold prices -- Bernanke's claims don't measure up to reality.
As Bespoke Investment Group points out, the price of gold has increased over 180% under Bernanke's leadership, which "is more than double the return of gold under any of his three predecessors." To anyone who worries about the purchasing power of the dollar, Bernanke actually boasts the worst record. That's the truth, the whole truth, and nothing but the truth!