Why Gold Remains My Favorite Investment

Some fun facts:
Gold (GLD) is up 18% for 2009.
The S&P 500 is up 17% for 2009.

The S&P 500 has essentially gone nowhere in “real gold” terms. The angriest bears out there might declare that the stock market rally is merely a mirage, the result of the decreasing value of paper currency. I will wait to see what unfolds in the next six months or so before I go that far.

Last year, I said gold would be my favorite place to be in 2009. While I thought it would far out-perform the major stock indices, it remains my favorite investment even as it hits 18-month highs today. In my opinion, the future carries a high risk of inflation. Gold, and other commodities, will provide much better protection against it than stocks (another form of paper currency). Any further bouts of deflationary panic will be opportunities to buy, not sell. (As Bill Fleckenstein is fond of reminding his readers: with a fiat currency, all roads lead to inflation).

Having said all that, with hindsight, I can see that I have been “too cute” with my investments and trading in commodities this year. I sold all my copper about 50% ago. I sold all my silver four weeks ago. Now, I am left with just my gold. I was looking for a relief rally in the U.S. dollar to deliver lower prices in dollar-denominated assets, but it is increasingly looking like that moment may not come anytime soon (more on that later). The main good side in all this is that since I have already sold down so much of my exposure to metals, I have no inclination to sell my gold into these highs…as temptation would typically dictate to me. I will just keep riding this out as far as it goes and take the buying opportunities one dip at a time.

Be careful out there.

Full disclosure: long GLD, long SSO puts

Comments

[Laurence Hunt:]

I think it has become clear that the "wait for the pullback" idea didn't work this time!

I became disabused of the concept by studying the September (and on) gold charts for 2005 and 2007.

The pullbacks just didn't happen then, and they don't have to happen now. In fact, I think the Comex shorts gaming each other will add further strength to the gold price going forward.

Oct 07 04:00 AM

[SmBlkBob:]

I sold 50% of gld yesterday but will jump right back in on any pull back.

Confidence is high but thought a little profit taking was in order. I'm sure I'll regret it after seeing a further rise early Wednesday but market timing has never been my strong suit.

My feeling is the broader market will pull gold down a bit but I have no doubt about the 'up' future of gold.

Bob

Oct 07 06:35 AM

[DONE_SONZ:]

Gold has been and will continue to be my favorite.The economy,good or bad and monetary blunders galore,works in both directions.

Oct 07 07:37 AM

[Slvrizgold:]

I would sell all GLD and purchase top miners. GLD is up 18% YTD according to your article, well son, I have to tell you most of my miners are up 18% this week alone. You want to own the best producing assets and top up and comers where you will get massive upside leverage to higher gold price.

Not to mention GLD is a scam designed to suck investment dollars away from the gold bullion market or gold equities. You have to hand it to the banksters, they are clever at paper fraud! I have been actively involved in studying precious metals for several years now and I have been around and read enough to know that all the people whose opinions I respect and have a great forecasting track record say - "DON'T PUT YOUR MONEY IN PM ETF'S!"

The stuff isn't allowed to be audited by outsiders and we all know all banks use "fractional reserve" methodologies. I'd bet my last dollar that they are using this approach to SLV and GLD! Not to mention all these banks like JPM (custodian) are technically bankrupt and insolvent were it not for the fraudulent accounting practices being used today. They contain trillions of dollars in toxic "assets" and unregulated derivatives that are essentially worthless. They have negative equity lol just like most mortgage holders today haha

Oct 07 11:43 PM