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.
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.