Gold has gone parabolic this year, really over the last couple of months, as a perceived flight to safety for fear of ongoing US dollar debasement. You may have heard that the SPDR Gold ETF (GLD) is now bigger than the SPDR S&P 500 Trust (SPY).
The fundamental argument for gold is pretty good as there appears to be a willingness to sacrifice the greenback in trying to revive the US economy. While I cannot be certain, I think the non-investing public is far more aware of what gold is doing than it was two years ago.
To me, this is evidence of mania, really a mania that has been ongoing for a while now. In addition to the fast rise in price we are seeing price targets continue to go up faster than the actual metal. We are close to $2,000, which would not be a heroic move, but as $2,000 gets closer, the extrapolators are now calling for $3,000 gold or higher.
Our clients have obviously benefited from our position in GLD as I view it as a core holding as a form of insurance against certain types of shocks and as an asset that usually has a low correlation to equities. However against the mania I perceive we sold 1/3 (subject to rounding) of our position early in the day on Tuesday.
A lot of the behaviors with gold now are ones we have seen before. For example is gold a "chip shot" from $3,000 (a reference to a comment by the late Joe Battipaglia about the Nasdaq going to 6,000)? And is GLD becoming the biggest ETF by assets under management similar to Cisco (CSCO) being the largest company in the world for a short time in 2000.
No doubt some will comment that the sorry state of the US makes gold different and while I generally agree, fundamentally we have seen these sort of anecdotal indicators before. While the gold case may still be intact, the thing I cite are negatives. Obviously the rapid price appreciation has allowed gold to grow in relation to the portfolio size which makes trimming it prudent and obviously if we sold 1/3 of our position we still have 2/3 remaining.
Disclosure: Long GLD