John Sweda

Own Gold? Time to Fold

I would recommend purchase of physical gold as an inflationary hedge at prices of $750/oz or below, not to exceed 5% of a balanced portfolio. I would consider purchase of the gold mining stocks to be in the category of speculative, to be limited to 5% of a balance portfolio. The only good news is that China is considering purchase of 4000 metric tonnes (it now has 600 metric tonnes), announced in mid-November. World annual production is 2500 metric tonnes. Certain gold mining stocks have moved up considerably since this announcement by China.

Citigroup's Panic/Euphoria Model: A Useless Sentiment Indicator

I would recommend the CBOE Volatility Index (^VIX) as a panic indicator, based on 8 OEX put and call options. A good market indicator is the State Street Investor Confidence Index. The Citigroup Panic/Euphoria model is not an indicator per se, but a contrarian predictor of the market 6 to 12 months out, and it is difficult to interpret correctly. The first chart shows a peak just touching on euphoria in May 2008, and 6 months later the market is indeed lower, so in some measure the Citigroup predictor could actually work if you sold in May (and presumably went, and stayed, away). The same chart indicates a buying opportunity (panic levels) in January 2008, and the market has drifted lower in 6 to 12 months, and this was not a good predictor of the market. The current neutral predictor indicates that there will be little or no movement in the market in the coming 6 to 12 months. In that the market is impossible to predict 12 months out, constructing and publishing these charts is basically a fool's errand.