Despite a crisis almost every weekend this year, gold has been in the doldrums. It’s not bad enough that Gold has lost 30% of its vale from the halcyon days of August 2011. That was the peak of the Summer panic prior to the November 2012 Elections, roughly 12 weeks before the November election.
Flash back and you can remember the entire world was bear ed up. What happened? Despite TV actors and Talk radio hosts of every political bent preaching gold gold gold, The crisis mentality passed. Over the next 27 months, gold dropped down to its low of 1185 per ounce, in December of last year, just 9 months ago. From 1951.1 to 1185 or 766 bucks lower. If you were unlucky enough to buy that high, you watched your “investment” drop 39% in 27 months or 1.4 % a month.
In a day and age where 1% drops in the stock market are covered like the crash of the Hindenburg, the monthly blood bath was hardly noticed by the media.
The Dow Jones, coincidentally, was below 11,000. Call it 10,500 on the lows that Summer.
The Dow, 27 months later, is at 17,000. or, 6,000 pts higher. That’s a 54% gain, or 2% a month.
If you were unlucky enough to lock into the fear trade. long gold and short the market, you were hammered. To put it mildly.
This is a graphic explanation of what following the herd and the emotion of fear can do to your long term rate of return on your holdings.
I had a client ask me the other day , “How could this have happened?”. Its very simple, Markets exist to punish folks for making emotional decisions.
Instead of looking at the market dis passionately, if you let the daily news reports color your decisions, you made the worst decision, long term, that you could have made. Period.
In my opinion, the top will be put in place when the vast majority of folks who missed this 3 year rally decide its time to get back in, “because they missed out on the rally”. Their investment red-ink will be the lubricant for the next big correction.
Then the cycle will re-appear. People on TV talking end of world. People recommending shotgun shells, canned goods, gold coins, an underground bunker, gas masks, etc etc etc. When we see that behavior again, that will be the next big bottom.
For now, until I hear people talking about stocks and buy outs and rate of return and IP0 valuations, I think this market will continue to run higher. Confounding, no,…. enraging the bears further until they can’t stand NOT being long the S&P. That will be the top.
Right now, I don’t see that behavior, so i think we continue to grind higher.
Granted, every 1, 2, 3 , 4 — 10% correction will be talked up by the “If it bleeds, it leads, mentality on TV”
It’ll be a bumpy ride.
I anticipate when the fed ends QE in October, that will be the first big hurdle to cross for the market.
The fed has been telegraphing the end of QE for over 15 months. When the stop in October, you’ll have people treating it like they got a surprise broad side from the fed. Nonsense.
When the raise rates will be the next big decision. But that’s any one’s guess. Including, probably, Fed Chairperson Yellen.
For now, look at the chart of Gold below. Its been in a $200 dollar trading range all year. When it breaks out above or below, that might give a trade opportunity.
