Yes, I haven't written in this blog for 6 weeks.
The paradox is that these have been pretty exciting weeks for Gold.
(maybe that's why I forgot to write)
Anyway I promise to write more regularly from now on.
And Today I will make a short summary of these last 6 weeks.
On the 11th of September, one ounce of gold was worth 713, and it is now 780.
What produced such a rise ?
Actually the current rise started in Mid August and accelerated starting on the 4th of september to break the previous high on the 6th september. But it's only after the 16th that it broke the May 2006 high.
In August the Subprime crisis started to unfold but it did not help the Gold price right away and it was initially very frustrating to watch as I wrote on the 29th of August
What really fuelled the Gold rally was the realization that the Federal Reserve was ready to use desperate measures to solve the crisis when it decided a 50 points rate cut on September 18th. The Stock Market soared after that day but it also showed that the Fed did not care about the weakness of the dollar and that capping the Gold price was the last thing on their mind. It showed the Gold market participant how serious the situation was, and it triggered an additional short squeeze which was already in the making.
In retrospect you would think that this strong move was obvious from the beginning, but it was not. All along this rally, I was skeptical because there had been too many disappointments before.
Even now I think most Gold Bugs are worried about an impending correction.
But this Bull market has proved its worth and all the analysis from the best gold bugs analysts that I read have been vindicated.
But my worries probably also stem from the fact that my gold stocks positions haven't been profitable yet.
Actually the Gold stocks in general still lag physical gold.
And the risk remains of a general asset price deflation that would take Gold with it, just like it did in May 2006.
But now we might consider that May 2006 as an historic anomaly.
It was a costly "anomaly" for me (and we should always prepare for this and be ready to cut our losses), but it maybe was just an anomaly.
Stocks and Gold are just not correlated historically and so we might be going back to normal now.
Which should help me solve one of the questions that still occupy my mind. Is the Stock Market going to soar from November to April , and should I take advantage of it ?
If Gold continues to rise, and the historical inverse correlation holds, then it is going to be ugly for stocks in spite of the favourable seasonality (Buy in November, Sell in May). The seasonality can be wrong sometimes. Last time it was
The Stocks Bears might be finally proven right, after being wrong so many times.
So I should probably not buy stocks (even Tech which is back in fashion), or only in a very limited way.
Beside, it is going to increase my risks unnecessarily.
If the stock market rises, along with Gold, I will profit from it though my gold stocks anyway, so I don't need to add other risks.
It is not going to diversify my portfolio but only increase my risks.
I know better now.
Showing posts with label Subprime. Show all posts
Showing posts with label Subprime. Show all posts
31 October 2007
29 August 2007
This Summer of 2007
Today, I am writing in the train, going back to Paris, and I take the time to reflect on this summer.
At the beginning of July I expected and also hoped for a kind of crisis.
In a way, I was afraid that nothing would happen.
Well, I can say that I was not disappointed by the extent of the financial crisis that happened this summer, but the consequences for the Gold price have been disappointing so far.
In truth, I am not surprised anymore, by this kind of counter-intuitive moves, especially since May 2006 when I exited the stock market at the best moment, but reinvested everything in a Gold stock and erased more than half of my substantial gains of the first 4 months of 2006.
I exited this stock and avoided the worst,but subsequently, I erased all my gains by trying to exploit the sell off, and misinterpreting and failing to take advantage of the volatility of that Spring-Summer 2006.
This is when I started to read everything about Gold and got really interested.
Actually I had started to get interested in late 2005, early 2006, but was not so much comitted. I guess the lesson is still the same : read everything BEFORE investing.
Anyhow, I decided to invest again in this gold stock in september when I observed that it had found some support and might be recovering.
Two or three months later, it went up spectacularly, and I was vindicated.
I had recovered a big part of my maximum gains for 2006.
But I wanted more after everything that I had suffered, and the time I had spent on this case (another common mistake). So I did not materialize these gains and later the stock started to fall.
But I still believe in this stock and especially since its value depends on the Gold price.
My guts told me that all this suffering would pay in the end. And in the mean time, I could learn a lot about finance, history, politics and market psychology.
It is very similar to what I experienced with a Silicon wafer manufacturer whose stock I bought in April-May 2002. (this particular timing was because I thought that the worst of the dot com bubble popping was over). When the stock started to fall, I did not want to sell, and I started to read everything about the technology and its market. Two years and 8 months later it finally paid, but I did not really took advantage of the whole increase. In truth, I could have made a lot more money if I had stuck to this stock longer.
This is probably why I decided to stay longer with this gold stock this time, in spite of the risks.
Sometimes, I have doubts about this strategy because it is incredibly risky to invest so much of your own money in only one small company.
But now I know its business pretty well and I also know how it moves compared to the gold price. And I also have studied the evolution of the Gold price as well.
To summarize my analysis, I am quite confident in the potential of Gold in the long term, for several reasons that I will expose later, but I am even more confident that at some time in the medium term (say, less than six months) it is going to spike higher and I will use this opportunity to cash substantial gains. At least I will start selling and reducing my “Value at risk”, and start breathing more normally.
It might not make an enormous annual return (if I count 2 years of activity since the beginning of 2006) but it will be positive.
At the beginning of July I expected and also hoped for a kind of crisis.
In a way, I was afraid that nothing would happen.
Well, I can say that I was not disappointed by the extent of the financial crisis that happened this summer, but the consequences for the Gold price have been disappointing so far.
In truth, I am not surprised anymore, by this kind of counter-intuitive moves, especially since May 2006 when I exited the stock market at the best moment, but reinvested everything in a Gold stock and erased more than half of my substantial gains of the first 4 months of 2006.
I exited this stock and avoided the worst,but subsequently, I erased all my gains by trying to exploit the sell off, and misinterpreting and failing to take advantage of the volatility of that Spring-Summer 2006.
This is when I started to read everything about Gold and got really interested.
Actually I had started to get interested in late 2005, early 2006, but was not so much comitted. I guess the lesson is still the same : read everything BEFORE investing.
Anyhow, I decided to invest again in this gold stock in september when I observed that it had found some support and might be recovering.
Two or three months later, it went up spectacularly, and I was vindicated.
I had recovered a big part of my maximum gains for 2006.
But I wanted more after everything that I had suffered, and the time I had spent on this case (another common mistake). So I did not materialize these gains and later the stock started to fall.
But I still believe in this stock and especially since its value depends on the Gold price.
My guts told me that all this suffering would pay in the end. And in the mean time, I could learn a lot about finance, history, politics and market psychology.
It is very similar to what I experienced with a Silicon wafer manufacturer whose stock I bought in April-May 2002. (this particular timing was because I thought that the worst of the dot com bubble popping was over). When the stock started to fall, I did not want to sell, and I started to read everything about the technology and its market. Two years and 8 months later it finally paid, but I did not really took advantage of the whole increase. In truth, I could have made a lot more money if I had stuck to this stock longer.
This is probably why I decided to stay longer with this gold stock this time, in spite of the risks.
Sometimes, I have doubts about this strategy because it is incredibly risky to invest so much of your own money in only one small company.
But now I know its business pretty well and I also know how it moves compared to the gold price. And I also have studied the evolution of the Gold price as well.
To summarize my analysis, I am quite confident in the potential of Gold in the long term, for several reasons that I will expose later, but I am even more confident that at some time in the medium term (say, less than six months) it is going to spike higher and I will use this opportunity to cash substantial gains. At least I will start selling and reducing my “Value at risk”, and start breathing more normally.
It might not make an enormous annual return (if I count 2 years of activity since the beginning of 2006) but it will be positive.
10 August 2007
BNP Paribas comes in
Gold ended down 2% today. It fell along with the rest of the stock market. The Dow was especially hit, finishing at the lowest point of the day and continuing the trend seen in Europe earlier. BNP Paribas made the news by announcing that it would suspend two funds made up of obligations affected by the US subprime mortgage market.
This is funny for me because I used to work for BNP Paribas in Paris, and it was not a very happy experience.
Meanwhile, it was announced that the ECB was injecting a record amount of liquidity in the money market. The highest since septembre 11.
This mortage crisis is turning into the beginning of a panic. But we will have to wait to see how it all turns out.
But I am convinced that in the medium term it will be good for Gold.
The Central banks will do anything to avoid a depression because this one would be a disaster.
They will have to relax their monetary policy further, until inflation becomes a real problem and at this point in a few years, Gold price will be much higher.
Right now , the FED, in particular onlly talks about fighting inflation, but won't be able to follow suit.
It talks the talk, but doesn't walk the walk.
In the short run, Gold suffers, but we've seen this before in May 2006 ane February 2007, and it doesn't contradict the long term bullish trend for gold.
Right now with the panic that we see in the Stock Market, many forecasts emanating from the Gold bugs camp are realized and it can only reassure us of this investment in Gold.
This is funny for me because I used to work for BNP Paribas in Paris, and it was not a very happy experience.
Meanwhile, it was announced that the ECB was injecting a record amount of liquidity in the money market. The highest since septembre 11.
This mortage crisis is turning into the beginning of a panic. But we will have to wait to see how it all turns out.
But I am convinced that in the medium term it will be good for Gold.
The Central banks will do anything to avoid a depression because this one would be a disaster.
They will have to relax their monetary policy further, until inflation becomes a real problem and at this point in a few years, Gold price will be much higher.
Right now , the FED, in particular onlly talks about fighting inflation, but won't be able to follow suit.
It talks the talk, but doesn't walk the walk.
In the short run, Gold suffers, but we've seen this before in May 2006 ane February 2007, and it doesn't contradict the long term bullish trend for gold.
Right now with the panic that we see in the Stock Market, many forecasts emanating from the Gold bugs camp are realized and it can only reassure us of this investment in Gold.
What The F. ? What's going on with Jim Cramer ?
If you don't know yet the CNBC presenter Jim Cramer, that should be a good introduction.
It sould be titled :
"Financial crisis are so much fun !"
It sould be titled :
"Financial crisis are so much fun !"
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