Friday, May 17, 2013

Gold's Allure is Starting to Fade

Just read an article in the WSJ this morning about Gold:

Up until recently the most frequent question I got from investors was what I thought about Gold.  The answer was the same then as it is now, if it is in an uptrend I like it, if it is in a downtrend I don't.

Gold's recent drop reinforces a number of key lessons for investors:

1. Assets that undergo parabolic moves (Gold, Apple, etc) almost always retrace most, if not all, of that move.  Therefore, having a herd mentality and buying into something like this once it has rallied a lot rarely makes sense.

2. Once everyone starts to accept that something is going to go up that is the top.  Gold's fall started when the consensus was that nothing would stop it from $2,000/oz.  Same thing with Oil a couple of years ago and Apple.

3. Investors believe that their most recent experience will continue.  I was told last year by someone in her 80's that gold ALWAYS goes up and has never lost money.  Same thing with people who are convinced bonds are conservative (30 year bull market about to end), normal stock returns are 30%/yr in 1999, etc.

4. Instead of trying to predict tops and bottoms and figure out why it is better to stay in harmony with the trend.  When gold was going up I liked it, now I don't.

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