Imagine you'd been smart and put some cash into gold.
You didn't need to buy before the gold market took off. Buying gold at the start of last month will do fine.
Six weeks on, your imaginary self now shows a profit of 14% in terms of the Dollar. Measured in Euros you stand some 13% higher. Versus the Canadian you're 16% up. Your return in terms of the British Pound comes a shade under one-fifth in less than a month and a half...
Too hot, too fast? You were smart in December; now it's time to get smart again.
So you look at the charts...and you decide to take a profit in gold.
I mean, it might all be over below $900 per ounce. The loss of confidence in central bankers could suddenly reverse this weekend. Sentiment in the credit markets could return like sub-prime never happened.
Oil quadrupling...grain prices at record highs...surging demand for copper from China...all the reasons for today's rising gold price might evaporate with a few choice words from, umm, well from Ben Bernanke or Hank Paulson.
Hell, even bond prices might come down - driving yields above the inflation rate and putting a stop to the destruction of wealth in your mutual and pension funds.
So you choose to get out of gold. It's time to take profits
Question: Where will you now put your money?
Hmmm...maybe you should switch into stocks? Yes, so the S&P now stands more than 10% off its top of the summer. The slump took a while, too...ticking first lower then higher, but never quite high enough to prevent a grinding loss for investors.
Kind of sounds like the Tech Crash, but with finance stocks leading. Things change though. Or rather, they might do...even if Bernanke's fresh promise of cheap money failed to stem the slide this week.
What about bonds? Sure, yields are now below inflation. But everyone loves a regular income - the bond bull-market proves that, especially if you count the gains in the shrinking Dollar.
Or you could hold your wealth in real estate. Prices turn when no one expects it, remember! And no one expects Florida, California or even London house prices to turn higher any time soon. Least of all potential home-buyers waiting for prices to fall further before they dare to get in.
No? Well okay...simply keep your gold profits in cash then. You know, cash like the Dollar, or the Euro, or Loonies, or Pounds.
Just decide first which currency you trust to hold value. Go on - make your choice and then sell your gold.
Adrian Ash
for The Daily Reckoning Australia
Editor's Note: Formerly City correspondent for The Daily Reckoning in London and head of editorial at the UK's leading financial advisory for private investors, Adrian Ash is the editor of gold news and head of research at BullionVault - where you can buy gold today vaulted in Zurich on $3 spreads and 0.8% dealing fees.
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About the Author
City correspondent for The Daily Reckoning in London and formerly head of editorial at Fleet Street Publications Ltd, Adrian Ash has been studying and writing about the investment markets for the last 9 years. He is now head of research at BullionVault - giving you direct access to investment gold, vaulted in Zurich, on US$3 spreads and 0.8% dealing fees.
Comment by fai on 15 January 2008:
is this article being sarcastic? or it does really suggest taking profit for gold at this price level? any idea
Comment by The Daily Reckoning on 15 January 2008:
Sarcasm was intended here. Didn't mean to scare anyone!
Comment by fai on 15 January 2008:
thanks!!! i just want to be safe...btw..i really have alot to thank for you and your website...since i started reading your website a few months ago, i being accumulating gold at average of 6xx/oz.. many thanks for you guys!!!
Comment by Jono on 16 January 2008:
I have sold off some big miners and done nicely in 6 months.. about 30%.. Thanks DR and your wisdom.
Comment by TaxHaven on 16 January 2008:
Not sarcastic at all! With everyone screaming at me to sell, sell, sell...! I ask, "for what?" Dollars? Pounds? Yen? Copper? Cigarettes? Lima Beans? For they are all, in part, currencies and in part, stores of value. We all have to take the ten- or twenty-year l-o-n-g view of this: nothing in the political/economic policy realm is likely to suddenly change and take on more of a "hard money" bent anytime soon. Bread and circuses for the masses will continue, social programs, guns and butter, the NHS, wars and inflation. Scarcity of certain goods will be with us always. Corruption and entitlement programs will never end. Trade deficits will not go away, bar the beggaring of the population. Living standards will continue to fall. So, it seems to me, the chances of some currency suddenly finding innate value of its own, suddenly becoming the paper of choice, are fleeting at best. And I don't want to spend the rest of my life chasing what currently looks best. I want to sleep at night, and that's why I shall keep my gold.
Comment by Jono on 16 January 2008:
Forgetting about long term trends...Look at gold's movement lately, its been a powerhouse, so it might be good to sell at a peak and wait for a 10-20% dip before buying back.
Perhaps the price of gold is never going back below $800US... but at least this strategy is achievable with gold mining companies.
Comment by AU1064 on 21 February 2009:
I made my first purchase in early Jan and bought at US$837/oz. Now it is about to smash through the US$1000 /oz mark
I only had a few thousand to spend but I'm glad I did and I'm happy to see it go up even if I'm not exactly retiring on it.
Like Taxhaven said, keep the Gold for the long term. That's my plan.
I shall throw another few thousand at it again soon but waiting or hoping for another dip.
Like Jono said, it may never get below US$800 again so I figure around the $850-$900 might be the magic buy window perhaps.(I'm no expert)
I have a question. Is it smart to borrow to buy Gold. I can probably really answer that myself (not Rocket Science)For example, If one had borrowed say $100,000 to buy gold back in 2006 then you'd be looking at a tidy profit (You would have doubled your money)Nice return. So I guess while ever Gold is moving up in value quickly then I guess there is nothing wrong with borrowing as you will get more back than what you are paying back in interest to the banks.
However, I guess if you pay the bank back quickly to keep your interest payments at a minimum and hold on for the long term then who cares.
Also, what amount of money does the everyday person invest in actual real Gold (not Gold shares) I feel a bit small time with only my 4ozs. (So far) oh........and my 1kilo of Silver.