Moving on from the gold short for now…
Investing well is as much about selling as it is buying. Sometimes you have to take profits. Sometimes you have to stop yourself out on a losing position despite your high conviction level.Investing well is as much about selling as it is buying. Sometimes you have to take profits. Sometimes you have to stop yourself out on a losing position despite your high conviction level.
This time is one of the latter. It’s time to let the short on the SPDR Gold Trust go for now.
The main reason we got short GLD is because we saw the dislocations in the daily trading action of silver accompanied by vacuum drops and that is the type of action usually associated with major topping processes. In silver. Not in gold.
I added the GLD along with the silver short because the two metals often trade with rather high correlation and I figured that if silver’s putting in that type of topping action that gold was likely to follow. But that hasn’t played out. Gold has continued to steadily climb higher with little evidence of the kind of panicky dislocation trading that I would look for when we should look for gold to top.
Indeed, to be sure, I’d be happy to revisit our gold short even at lower prices if the action is to start to get toppy. But it’s just not toppy “yet.” So I’m going to revert back to one of the lessons that Jim Cramer himself used to drill into my head in our closed-door trading strategy meetings — “Discipline trumps conviction”.
From a macro perspective the short in these metals is driven by two factors: I do expect that gold (and silver) is an overcrowded long at this point. The bulls and everybody can see that the out-of-control printing press of the worlds’ central banks can drive gold prices higher as more of a fiat currency becomes devalued versus a “storer of value” like gold. My biggest problem with that bull thesis is that the banks are going to be hoarding their cash and capital thereby undermining the monetary expansion dynamics of the Federal Reserve’s policies.
That was my theory anyway. But as a comment on my separate TradingWithCody.comservice put it the other day”
“When are you central banker loving economists going to get your theories right? You are making even primitive gold bugs look smart. Shame!”
At any rate, discipline must trump conviction if we’re going to continue to blow away the markets with our portfolio around here. I’m letting the GLD puts expire at losses although I’m going to continue holding the silver short because it’s already a winner for us and it’s also continuing to trade with that dislocating toppy action that was the reason I shorted it to begin with.
Discipline.
