The 'Hardly Noticed' Rally in the Gold Market
I've watched and listened to the "Cable Heads" as long as my supply of Rolaids allowed.
All they've talked about is the drop of the US Dollar against other currencies. Of course, that's a big story.
But what about the price of gold?
In the past 30 days (Apr. 19—May 19), the price of gold has risen from $332 per ounce to $366 — an increase of 10% — a significant change for a "money" commodity.
No surprise to me that the talking heads aren't covering gold.
In my last essay on the mysterious yellow metal, I discussed the different types of rallies.
There's the "Blow-Off" rally, where the price increases are accompanied by media coverage. The higher the price, the more prominent the coverage. I have lived through several Blow-off rallies where gold's story finally winds up in headlines on the front page.
I described the other type of rally as the "Unnoticed Rally." In that instance the price goes higher WITHOUT media focus, or, often, without any kind of focus.
The past months have brought us a classic "Unnoticed Rally."
When the talking heads discuss the drop of the US dollar, for example, their "take" is either: "It really doesn't matter" or "A cheaper US dollar is good for our exports."
Am I alone, or do you hear the same garbage I do?
Here's some additional jewels from the "Kable Kooks":
"Inflation continues to be a non-factor. The real concern is deflation."
"The equity markets have turned from the ‘killer bear' to being under-valued."
"Yes, bond yields are the lowest seen in decades, but there are some attractive bonds with higher returns worth considering." (Junk bonds)
"Residential real estate is ‘bubble-bursting proof.'"
It's just as well that these "heads" don't have much to say about gold.
This gold rally is also going unnoticed by customers. There's very little buying on the part of the public. In fact, the opposite has happened, and we've seen a huge amount of selling with every $5 dollar increase in the price of gold.
Do these savvy sellers know something we don't know?
I don't think they're so savvy.
Which brings us to the "Question of the Day": When Should Gold Be Sold?
I asked one middle-aged-investor-type why he was selling. He admitted he didn't need the dough and wasn't guessing that the price of gold was going lower.
He sheepishly confided that the only reason he was selling was to take a profit on something. It had been a long time.
Here is my advice on when to sell gold: this counsel may be considered single minded or myopic.
Hold your gold, sell ONLY when you need the dollars.
When, for instance, you are buying a house, helping the kids, paying for your brain surgery.
Never sell gold to use the dollars for another investment UNLESS it's a business venture you know something about (preferably YOUR business).
And then we have those dramatic instances when you are forced to liquidate your gold.
For example, you're thirsty, I'm the only one with water, and it's going to cost you a gold coin per bucket.
Or, the LAST TRAIN is leaving the station and the price for a ticket is a gold coin.
I trust this message is clear.
When should you NOT be selling gold?
When the price goes up too high or down too low.
When someone tries to convince you that the bullion type gold coins you own = Bad and the collector type coins he wants to sell you = Good.
In fact, he will try to persuade you that the bullion type gold coins are so bad that the government will come and take them.
Sometimes people will sell just for "the action." Resist such temptations.
My granddaddy once advised me never to run after a trolley or a woman. There was always another one coming.
I have no idea what grandpa's wisdom has anything to do with the above, but the rhythm of his words seemed appropriate.
May 21, 2003
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