Tuesday, September 7, 2010

Gold Season Has Started

I have written lots of articles on gold since I believe that everyone should have at least some gold exposure.  Now, I wouldn't call myself a gold bug, per se.  I would be OK if gold were to drop to $300 an ounce or even less since that means that all of my other investments would be going up in value.  It means that the dollar would be strong like in the 1990's and America would be enjoying prosperity.  Oil would probably be in the neighborhood of $30 a barrel or less so my monthly expenses for heating with natural gas and transportation would be less.  Food prices would decline since transportation costs would go down.  So, I could really care less whether the price of gold goes up or down since I will benefit either way.

But, I believe that gold prices will go up.  I also believe that they will be increasing to new nominal highs before the end of the year.  I don't have a specific target price since it really doesn't matter.  I am simply positioned such that gold serves as a hedge to my portfolio.  About one-third of my retirement portfolio is in Goldcorp stock (NYSE: GG).  It has been by far my best performing stock over the last several years.  This year hasn't been quite as good but it is still positive.  I create equity collars using the stock and try to sell a little bit when the stock spikes and buy back some when it falls.  I don't always hit the highs and the lows but try to trade around a core position in the stock.

I believe that gold prices will go up because of the seasonality of gold.  There has been a great deal of writing on gold's seasonality.  As I write this on the day after Labor Day, the price of gold is up over $11 per ounce and is clearly within striking distance of new nominal highs.  And yet few people outside the financial world are talking about gold as an investment.  I remember when the Nasdaq was making new highs, people up and down the hallway at work were constantly talking about tech stocks and getting in on IPOs.  And yet I am hearing nothing about gold or silver, which is one of the reasons that I don't believe they are in bubble territory yet.  I think that a bubble will occur for sure.  But I just don't think now is the time.  I think there are several more years yet to go before we get through this portion of Kondratiev's cycle.

So, I am just simply asking you to pay attention to the price of gold over the next several months and see what happens.  You don't have to invest if you don't want to.  You can continue to use the excuses that gold is a relic, that it pays no dividends, that you can't really buy anything with it, or whatever excuse you want to use.  Just know that I do hold some physical gold and silver and have stock in Goldcorp and Silver Wheaton but that I still hedge my stocks with protective puts and sell some covered calls against them.  Know that I try to buy a little more during the off season and sell a bit when the prices rise.  And think to yourself whether or not there may actually be something to investing in assets that protect wealth from the eroding purchasing power of fiat currency.  Until next time--KEEP IT REAL!

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