Sell it. It’s been going down, and will keep going down.
It’s interesting to note that people are still asking, “should I buy gold here, or wait?”. I’ve also heard, “I’m going to average down on my gold”….”Gold is a buy on this pullback”…The fact that gold has dropped over 20% from it’s highs, hasn’t phased a lot of investors. The assumption in all this, is that gold prices will be going back up. Dangerous assumption.
Anybody asking, “should I be getting out of gold?”.
As a contrarian, this has to start me thinking that now is the time to sell it. Do it while you still have a profit (or a manageable loss). When a fairly recent 20% loss emboldens the herd to buy more, you have to start thinking in Costanza terms. Now, this is simply from my observations of the “herd” of people I talk to, mind you. But unbeknownst to them, they are my contrary indicator. They lose, I win. And this wonderful money making indicator is free of charge!
As a wise man once said, “if the herd is long, the herd is wrong.” You can profit from those words, if you act on them.
Look people, unbeknownst to many of you, the dollar is rebounding. Gold and the dollar are negatively correlated, meaning in layman’s terms, as the dollar strengthens, gold prices weaken.
I now expect the dollar will rally through this year and into next. Here’s why:
1.) It’s cheap relative to the other major currencies. Keep in mind, it’s been in a bear market for over 7 years now. People have been shorting the dollar for so long now, it’s like a habit—as familiar as a cup of coffee in the morning.
2.) Strength in U.S. exports, due to a weak dollar, has helped to reduce the current account deficit. Things move in cycles. What goes around, comes around.
3.) Surprise: the lack of growth going forward will not be in the U.S., but in Euroland.
4.) Money pent up in international stocks and funds will re-patriate back onshore, once investors see the relative strength and better returns in the U.S. market vs. Europe. It’s estimated that U.S. investors have more than doubled their allocation to international stocks from 2003, where the average portfolio allocation to foreign stocks was only about 9%.
5.) U.S. assets, including real estate, are cheap right now.
Update: I just took a peek at Ibbotson Associates asset allocation model. They recommend a 24% allocation to foreign stocks for growth oriented investors. Aggressive growth investors: 31%.
As always,
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