Gold prices as reflected by the gold ETF (GLD) have lost 22% in value over the past six months. The dramatic sell-off on Monday has dashed hopes of many investors for a thirteenth consecutive positive year for gold prices.
Today as the U.S. markets are falling sharply in midday with S&P 500 down 1.76% and NASDAQ down 2.34%, gold prices failed to use the opportunity to rebound and are only up 0.35%. Poor performance for a supposed “hedge” to financial assets.
SiAlpha is maintaining a NEGATIVE rating in the immediate and short-term on gold. The “gold dust” may take a few weeks to settle.
We would encourage our readers to read the blog post by our founder and CEO yesterday at http://buyandmanage.com/gordon-gekko-got-one-thing-right/ for his insights on gold, investor reaction and our portfolio strategy.
Here is an excerpt from the blog:
Greed is not good. It’s what leads investors to disastrous losses.
But Gordon Gekko, the fictional character from the infamous movie Wall Street (1987) got one thing right: “Ever wonder why fund managers can’t beat the S&P 500? ‘Cause they’re sheep, and sheep get slaughtered.”
Golden Lesson Yesterday
Most investors (and their fund managers) are lemmings. Or as Gekko would say sheep that simply follow the “herd” to the slaughterhouse. Therefore up to 80% of them fail to outperform their own benchmarks. Why they behave in this manner is discussion for another time.
But a classic example of this was yesterday’s sell-off in gold prices. The gold market experienced its worst loss since 1983. Why? Apparently over poor Chinese economic data which signals a slowing global economy.
Based on our analysis of the gold price collapse, it had nothing to do with the Chinese data. It was simply an excuse to sell-off gold which we warned the previous week with a NEGATIVE rating alerted our clients to on April 5th http://www.sialpha.com/gold-prices-at-key-support-level/
Our quantitative investment systems have been alerting us to poor price action and money flow over the past month as monitored by our analysis of the Gold ETF (GLD) which has lost over 13% in the past month.
On Friday morning our systems became extremely negative on Gold in the immediate term and we exited all our commodity large cap and ETF positions. Alerting our clients and posting on twitter @BuyandManage at 10:54 am EST:
“Time for caution. #Gold $GLD prices down 3.57% breaking through key support at the $1525/oz on route to $1350″
After our twitter post on Friday afternoon a massive $20 billion sell order hit the gold market. I can assure you it wasn’t us. But likely a hedge fund or algorithm that came to the same conclusion as we did in the morning.
That large sell order foreshadowed the panic selling on Monday morning. I’m sure some frantic calls were made in hedge fund circles as money managers tried to figure out who was selling and why?
And you can imagine John Paulson’s investor relations team must be fielding higher than normal call volumes as his funds reportedly lost over a billion dollars on their gold positions since Friday.
What to do now?
Well I can’t tell you what to do. But if your financial adviser or money manager is selling gold now or failed to reposition your portfolio against an obviously overheated market, you likely have a “sheep” working for you.
But I will tell you what we’re doing on our own investment portfolio…