Patience is a virtue, unless you’re running a logistics company

In today’s Exponential Investor…

  • Has gold gone too far? 
  • The only way to profit from gold 
  • What are the alternatives? 

A single company (Apple) is now worth four times more than the entire gold and silver mining sector – around $550 billion.

That suggests that gold has plenty left in the tank (or Apple is running on fumes).

And yet…

If you listened carefully to the various Southbank Investment Research editors and bought up plenty last year, you’ve already sitting on some very healthy gains.

We’re talking 50%-100% if you bought last autumn, depending on what form your investment took.

So… should you sell?

Well, it depends when you bought it, and what kind of investor you are.

There’s a kind of framework to be built here.

Do you think gold will be higher in 5-10 years? Do you think that before then, you can confidently sell and re-buy the same amount at a lower price? Your answers to these questions roughly dictate the answer to the question, should I sell gold?

For me the answers are yes and no. If you said no to the first, then you can skip the rest of this to be honest.

If you said yes and yes, then it gets a bit complicated.

For me, I do think it’ll be higher at some point in the next five years, and don’t back myself to time the market between now and then.

Like a lost child in the supermarket, I reckon it’s better to sit tight and wait, rather than zooming about trying to track your parents down. That’s how you miss out. You can sell the dip and buy the rally that way.

I suppose I am accepting the market return on gold in return for peace and no chance of underperforming the precious metals market. That’s the equation, at its heart.

It’s also a more relaxing investment strategy – make a high-conviction long-term call and wait it out.

But to do so, you have to really believe in the arguments supporting a multi-year bull market – so you don’t sell even if it crashes back down 20% or 30% in the interim. That’s not so relaxing.

I reserve a special place in my investor’s diary for the view that over the next decade, gold will not be the hedge but the bedrock of most portfolios. That inflation will slowly erode confidence in stocks, and that it will in that way be similar to the 1970s, if perhaps not quite as extreme.

This means that trillions of dollars worldwide, currently invested in stocks and bonds, will slowly transition into hard assets. Precious metals, miners, commodities and the like.

It’s not my top view of how things will go, but I think that it is more likely than other people think it is.

But anyway, back to the present. For many people there is a case to sell now because gold has come too far in the short term.

Maybe you bought it as a hedge last year.

And maybe you hadn’t gone as far as articulating that the next crisis would lead to the crystallisation of a new economic dogma which allowed for unprecedented fiscal and monetary expansion, leading to a global debasement of currency and a sharp appreciation in the value of precious metals and miners.

That’s completely reasonable!

And wherever I look there are people saying buy gold and gold is only going higher, and gold and friends have indeed come a long way in a short time.

My contrarian revulsion emerges when I see all these things, making me double down and question what I think.

I’m okay with the long-term argument, but can I make peace with a bad patch in the interim?

If you’re a holder of precious metals, this really is the question.

We’ve had a lovely ride, but it won’t be like this forever. Will you ride out the turbulence?

It is as reasonable to think you might get a better price at some point in the next six months as to think it will be significantly higher at some point in the next 24 months. Both are plausible, and not mutually exclusive.

The question I always ask myself is this: if I sell, am in confident that I will re-buy at a lower price?

Will I not only have the correct thought (yes, I want to buy this dip) but at the right time too?

I know I’m supposed to exude confidence and tell you what’s what, and that’s my job, but I’m sorry, I don’t back myself to get all these things right. I prefer humility. You might be different and that’s fine too – it takes many to make a market, after all.

But sell timing and buy timing are hard, and in my mind the shorter time frame you operate in, the harder they get.

I think there’s another, simpler option.

The answer potentially lies in a strange phenomenon I witnessed on a run about five or six weeks ago.

Actually, for the life of me I can’t remember how long ago it was, time still feels a bit warped. Lockdown now seems to have flashed by incredibly quickly, don’t you agree?

Anyway, on a cool, misty morning run, I think on a Sunday, the streets were empty. Even by Sunday morning standards, it was eerie because lockdown was still pretty much accepted.

But once every kilometre or so, I’d suddenly see a single queue of blokes.

Comically, this kept happening. Only men, and only sporadically, and all for the same shop.

Barbers!

Shaggy haired men of all hairstyles had woken up in unison on the first day barbers opened, and felt that their morning would be best spent waiting two hours for a haircut.

They had the patience of gold bugs, that’s for sure.

But therein lies the answer to what solution there might be for gold holders who are getting a bit nervous but don’t back themselves to sell and re-buy well enough.

Seek professional help, and go for a trim.

Like our long-haired protagonists, you don’t have to go all out when your hair gets a bit long. A standard short back and sides will do.

So maybe sell a bit. “Trim”.

With gold paying no income, the only way to make money is to take profits after all.

Source: Koyfin

And I mean… while you’ll catch me calling US tech stocks a bubble on my Twitter, I wouldn’t say that about gold.

But they have gone step for step since the start of the year, as you can see above.

And yet, as so often, what you think depends on what time frame you’re operating in.

So not only do you need to think about your own investment horizon before thinking about what to do with your lovely precious metals profits. You also need to look at both short- and long-term charts for gold vs stocks. Below is the 25-year chart, with the Nasdaq in red and the gold price (in USD) in blue.

Source: Koyfin

The Nasdaq broke away from gold’s performance once before, and at the peak of that bubble was pretty much the best possible time to buy gold instead of stocks in the last 100 years, as you can see below.

Source: Koyfin

With precious metals then, if you’re a bit squeamish in the short term, trim a bit.

But don’t forget the long run….

Source: Tavi Costa, on Twitter

That’s all for now,

See you next time… 

Kit Winder
Editor, UK Uncensored

PS If you are looking to sell gold, and want to replace it with something else, there are a fantastic range of alternatives discussed in my colleagues Nickolai Hubble and Boaz Shoshan’s excellent letter, The Fleet Street Letter Monthly Alert.

If that’s your kind of thing, find out more here.

Category: Commodities

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