There's an expression on Wall Street that goes: "There are Bulls and there are Bears...but there ain't no Pigs." Why is that? Because their greed causes them to either go broke or, in the case that follows, be left on the sidelines.
Over the last couple of weeks I read several articles from some of the "experts" in the industry suggesting that since gold had hit its highest price for the last 24 years that gold had "gotten ahead of itself", was a little "toppy", due for a "substantial correction" or "pull back". And so they were recommending that people sell their gold and wait on the sidelines until the "correction" was over where they expected a gold price of around $450 - $460 per ounce. At that time, of course they would give the "all clear" signal that it was time to jump back in for the next leg up of the gold bull market. Imagine that, knowing exactly when to sell high and when to buy low.
Given the chart at this link, we can see where the price of gold reached about $337 not too long ago. Then, as our learned pundits declared, the price surely corrected, but only to around $496. In a dramatic "whip saw" action, the price climbed to the recent high of around $540 as quickly as it had dropped.
Now our little piglets have a problem. They sold their gold at the previous high, and seeing that they were correct in their prognostications, probably sold more of it as the price dropped. Now they're out of the market...on the sidelines waiting to get back in at around $460, but the gold price has returned to a new high. Ouch!
Sure, the gold price could have dropped further and our piggies would have cleaned up. In any event (here's where it really gets exciting) at some point, our sellers will decide to take their lumps and buy back into the market at considerably higher prices. Their greed will compel them to do so...and suppose the gold price corrects to $460 a day or week later. D'oh!
In a bull market such as we have in gold, attempting to time the market is particularly risky, especially when it's so unnecessary. A safer strategy is simply to buy and hold for the long term and perhaps make an additional purchase during those ubiquitous corrections as they occur if one is inclined to add to their portfolio. One thing is for certain, it sure is easier on the nerves.
The only other consideration I would have regards the question of how long this gold bull market will continue. While no one can say precisely, I believe I have a reasonably solid method of determining the answer to that question which is: for as long as the fundamental issues that are driving the price of gold higher continue their trend. Some of these fundamentals are:
- Increasing trade deficit
- Increasing budget deficit
- Increasing inflation / increasing cost of commodities (oil, gas, copper, silver, gold, etc.)
- Increasing Middle East tension
- Increasing demand by China and India for energy
- Increasing interest by foreign countries to diversify out of their US dollar reserves into other currencies and hard assets
I think it's safe to say that if and when these fundamentals start to slow down or decline, it might be time to reassess the portfolio. Personally, I don't see that happening anytime soon rather they continue to accelerate.