Clarifying my Gold View
New readers have recently been confused about my views on gold.
On September 21, I indicated that I was negative on gold and sent out a Trade Alert stopping out of my long position in in Barrick Gold (ABX) (click here for the link.)
I then followed up with a major research piece on September 27 about “Why China is Gold’s Best Friend” (click here for the link.)
So what gives?
Do I love gold? Or do I hate it?
Believe it or not, there IS a method to my madness.
Like all global macro hedge fund managers I maintain short and long term views on all assets classes around the world.
The goal is to find the cheapest securities to buy, and the most expensive ones to sell short.
I am very positive on the five to ten year prospects on gold, as outlined in the research piece above.
However, a series of new developments suddenly turned by short-term view negative.
1) On September 21, The Fed announced an aggressive liquidation schedule for its $4 trillion bond hoard that will certainly raise interest rates.
2) Gold failed to rally when stocks later sold off, meaning it lost its “RISK OFF” hedging ability, and that existing gold longs were trying to get out.
3) I didn’t want to be long ahead of the September 27 tax package announcement.
4) Hedge fund longs in the futures markets soared to new all time highs, another bearish development.
Bailing on (ABX) turned out to be the right thing to do at the time. It traded as low as $16.06 this morning.
Continuing on with the (ABX) October 20 $15-$16 vertical bull call spread would have been madness.
There was not enough time for things to turn right by the October 20 expiration date if they went horribly wrong first.
And with my 2017 performance now up 50%, protecting those numbers has become a major part of my strategy. That means avoiding losing money at all times.
Over the course of the coming decade, the prospects for gold still look great.
I will no doubt be revisiting the (ABX) trade again in the future, as well as the ones for Newmont Mining (NEM), the Van Eck Gold Miners ETF (GDX), and the Global X Silver Miners ETF (SIL), from which we all made monster, rapid profits in August.
Legendary economist and early hedge fund manager, John Maynard Keynes, said in the 1930’s, “When the facts change, I change. What do you do sir?”
I keep that sage quote taped to my computer monitor, right next to his other great insight, “Markets can remain irrational longer than you can remain liquid.”
I think it is a good idea to take the great man’s advice. It has stood up well over the test of time.
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