I’m truly amazed how spellbinding the gold trade can be to the masses.
Gold has minimal utility, but it somehow has achieved a price that despite its lofty levels continually finds buyers.
In 2015, the trade of the year so far has been gold.
As the fear in the market increases on deflation caused by the crash in oil prices and weak global economic activity, the desire to own gold has pushed the price higher by $1,000 per ounce.
Can $1,300 gold hold? I’m a skeptic, but I’m biased, given my views on the lunacy of owning gold.
Let’s turn to the professionals that trade the stuff regularly.
Neil Gregson, a fund manager for JP Morgan Asset Management, was a buyer of gold and gold-mining stocks in 2014.
That was when everyone was selling and gold prices were falling below $1,200 per ounce.
With the NYSE Arca Gold Miners Index up some 25% in 2015, the time to sell is now.
You can see how gold is struggling to hold the $1,300 price.
According to Gregson, much of the gains in 2015 will be long forgotten as the crisis du jour fades.
Quantitative easing in Europe is now behind us. So, too, is the unusual move by Switzerland to remove caps from its currency.
Heck, even oil prices are stabilizing a bit with $45 per barrel acting as a strong base for crude.
Gregson thinks gold does well in times of distress. If crisis is removed, what is there to hold gold prices higher?
I agree wholeheartedly. About the only thing gold bulls can hang their hat on is perpetual fear.
In the near term, though, fear might be taking a backseat to optimism.
The economic recovery in the U.S. will eventually lead to higher interest rates, putting a serious dent in the fear-based gold trade.
As for the gold-mining stocks, they are vulnerable to a pullback.
For those stocks to move higher from current levels, higher gold prices are needed and that doesn’t appear to be the path of least resistance.
Thus, locking in 25% gains would seem to be a wise move.
If crude oil can fall as precipitously as it has done, wouldn’t the same be possible for gold?
Granted, the issue with crude is purely supply/demand, but at least crude has utility whereas gold does not.
Imagine a stable world that includes solid economic growth for a wide array of economies — developed and undeveloped. Gold wouldn’t stand a chance in such a world.
In fact, one could easily see gold collapse to below $1,000 per ounce or more.
That sort of move might just wake up the gold zombies and convince them to liquidate their positions. I’d do that before they do.
Locking in now with gold at $1,300 is not a bad strategy at all.
You’ve done well, no need to press your luck.