What to Do with Gold?

Gold may be one of the biggest questions on the market right now.

It’s easy to see how commodities, equities, real estate, bonds, and even treasuries have been pushed down by our bear market - and even easier to see how they could spring back. Gold is a different story.

It leaves experts scratching their heads, and the “talking heads” embroiled in discussion…

On one side, it has run up during the downturn. On the other, it hasn’t really run up enough. And we’re not even going to get into the arguments on its inflation-adjusted value, or oil-adjusted value.

Gold is where investors will be hiding their money until the markets follow through on this rally or the dollar gains in value. If we’re coming out of the woods, gold will continue to trend down; if the markets move even lower, look to see a second spike in gold prices.

So what should a cautious investor be doing with their gold allocations? Nothing.

At least right now.

As of Monday morning, gold had dropped another 2% and now sits at 878.70 an ounce. It’s impossible to know where it will go in the short-term. And while our asset allocation strategy includes gold, it doesn’t recommend buying when there is too much potential to be purchasing at 10-year highs.

An investor should be taking calculated risks, and right now there just isn’t enough convincing evidence to make a concrete decision either way.

But that doesn’t mean there aren’t options if you feel differently.

The SPDR Gold Trust ETF (NYSE: GLD) is an easy way to put your gold beliefs to the test. You can go long, short, and even option this ETF. For the numerous gold bugs and anti-gold’ites this is an easy way to put your money where your mouth is.

Comments

[RUSSIANFM:]

There are too many websites/newspapers touting gold as the best investment. Everybody is a gold bull. That for me is reason enough to start selling.

Everyone is assuming lower interest rates and printing money is going to suddenly magic inflation back into the economy - that would be ideal, but the bigger risk is in fact deflation.

For those who really do believe that inflation is such a risk - why not buy basic metals which will continue to rally hard if governments are injecting money into infrastructure projects. I would rather buy an inflation-linked product which is trading near it's all time lows (ie base metals), rather than one which is trading right near the highs (ie gold).

Apr 07 05:18 AM

[yellowhoard:]

Gold is great long term, but you've got to like palladium in the short to medium term. Downside to about $200. Upside to ?

Apr 07 07:50 AM

[Barryyes:]

And what about Silver?

Are both of these markets being manipulated right now?

Apr 07 07:55 AM

[Vuke:]

It's a good sign to see hesitation and concern regarding gold. That's a buying signal if there ever be one.

Bull markets always climb a wall of worry, with gold being the best at shaking out weak hands. When in doubt think of those mountains of bad paper slowly surfacing and how happy its owners would be if they could exchange it right now for gold.

A quick look at the charts will show gold has actually been climbing lately in most other currencies such as the yen and euro. It is the strengthening $US that has appears to drop the price. Look for a correction in that trend.

Apr 07 08:58 AM

[SW Richmond:]

"What to Do with Gold?"

Take delivery.

Apr 07 09:07 AM

[Cesato:]

Sell it all now, buy it all back in Oct at USD 760 for a 2 year bull trend. Finish Palabra!!

Apr 07 09:09 AM

[zepheri:]

an ounce of gold four pounds of silver, 2009
an ounce of gold pound and a quarter of silver, 1909
Silver is the better bet, get in before you see it in the news.
Gold, blah blah blah
Silver ......

Apr 07 11:40 AM

[Cesato:]

A screaming SELL is the signal now, pride doesn't make you money just a goldbug!!!

Apr 07 11:43 AM

[Bruce Pile:]

I'm not sure about any law that says gold must go up while the stock market is "in the woods" and go down as stocks come out of the woods. If you look at the last bear episode, mid '01 to mid '04, and define the "woods" as going to Dec. '02, you see that as we emerged from the woods, gold actually climbed from about $320 to $420, over a 30% return in about a year! During this whole woods/out of the woods transition, the 200 dma for gold formed essentially a straight line up with no distinction between bear or bull stock market.

There was no inflation problem with that recession recovery, yet that didn't stop the gold bull. There was a double digit inflation problem with the major bear/bull transition before that (late '70s, early '80s) and of course gold not only kept climbing in that commodity bull market, it went into a hyper climb. The present gold bull market is probably a ways from ending, so we may have either a continued climb if a miracle takes place and we escape this unprecedented flood of printed money with only the mild inflation of the early 2000s, or we will have a hyper climb in gold if the flood gives us some inflation.

Apr 07 11:51 AM

[Bruce Pile:]

As a post script to my above comment, I'd point out that you can lay a straight support trend line on the gold chart through the lows of the last 3 years, excepting the brief 2 month October/November decline where you had the aberrant condition of panic fund delevering, and you have the current $880 level very near that trend line. That would be a repeat of how gold behaved as the stock market emerged from the last woods in '02, '03.

Apr 07 12:19 PM

[RUSSIANFM:]

I see every negative comment on gold posted above got multiple thumbs down...I guess that confirms my suspicion that everyone wants to be a believer. Do you ever notice how those ideas that people spend forever trying to justify, are the ones that never work!

I could think of 100 reasons to buy a lot of stocks that I have then watched fall 50%. What I am saying is that if you like the idea of an inflation trade, why buy the most expensive option on the theme?

Apr 07 01:16 PM

[altaman:]

I agree that there are too many commercials and posters touting gold at the moment. Gold is, however, biased on the long side as a general hedge against various horribles. What I see is that most investors and funds are not looking to gold yet and are very resistent to even considering it as it has negative connotations due to the whole "gold bug" slander. I am unable to talk anyone that I know into even the smallest position in gold no matter how well I make the case. My conclusion is that the great majority of the great unwashed masses have yet to even consider gold as a serious investment. Thus the general bullishness bias that I see does not suggest to me that we are topping. Some combination of inflation, USD debasement, war and/or social chaos will win the day in time (patience is a virtue for gold longs).

Apr 07 05:25 PM

[@TexasER:]

The risk of future shocks is still quite strong. The renewed optimism in the equity markets only increases the level of panic we will see if another shock happens.

Notice I said if. After all, the administration may yet be successful in numbing the economy, dragging the misery out slowly over a decade or more.

I'm more of a 'rip the bandaid off quick' guy, myself.

Apr 07 11:50 PM