Were We Right About Gold?
Were we right about gold earlier in the year? In May, we began to question the contradiction between deflationary pressures and a rising gold price. As we wrote in a June 1st post:
David Rosenberg sounds some important cautionary notes on the economy and stock markets, and then predicts that gold will top out somewhere around $3,000. We’ve argued against this call recently, but admit to having some misgivings. If Zulauf is right, and deflation is en route, then it is entirely irrational to chase gold — unless you believe, like most of the world does, that something like “disdeflation” does not exist. We’re well aware that history is replete with episodes of fairly persistent irrational asset pricing — gold might thus have a ways to go. And if central bankers and other policymakers lose their heads in the fashion that Zulauf fears, then higher gold prices might turn out to be rational in hindsight. Thus, we continue to watch gold prices closely. Some of our clients continue to hold shares of GLL [in our Opportunistic Portfolio model], but if gold prices take out their November 2009 highs, we will close them out and look for a better entry point.
We eventually did close out clients’ positions in GLL as gold set new highs about three weeks after we wrote that. And as it likes to do, the market made the trade look pretty dumb in hindsight, with gold falling sharply since then.
A couple of outlets, ETF Trends and the WSJ, have recently been pondering the decline in gold’s price. It’s a no-brainer in our view, but we’re still wary that the bubble has yet to run its course, and it could gain traction again if the pro-stimulus crowd eventually wins the debate.
IMPORTANT DISCLOSURES: Symmetry Capital Management, LLC (“SCM”) is a state registered investment adviser in the Commonwealth of Pennsylvania. The views expressed by the author are as of the publication date, and are subject to change based on market and other conditions. The foregoing information is for informational, educational, or entertainment purposes only. It does not constitute an offer to buy or a solicitation to sell any security, or to engage in any investment strategy. Investors should not use this information as a basis for any investment decisions without first consulting their own financial adviser. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS.
http://symmetrycapital.net/index.php/blog/2010/06/disdeflation-revisited/
http://www.etftrends.com/2010/07/why-gold-etfs-are-declining/
http://blogs.wsj.com/marketbeat/2010/07/19/gold-down-what-gives/?mod=rss_WSJBlog&mod=marketbeat
News and Views | art July 20, 2010
