How to factor fear and greed into gold investment

A Short Course on Fear and Greed: Successful Investors Wrote the Book

By Guy Christopher*

We might have been by now, had we better understood the finer points of “fear” and “greed” during our investing lives.

“Greed, for lack of a better word, is good,” said fictional corporate raider Gordon Gekko, played by Michael Douglas in 1987’s “Wall Street.” The quote became a rally cry for the 13-year stock market surge following the October ’87 crash.

Wall Street

Fear, on the other hand, can be just as influential in charting investments.

“I have only two positions right now – cash and fetal,” wailed investor Jeff Mackey, staring wide-eyed into CNBC’s cameras on October 2, 2008. The subprime mortgage crisis was in full cascade mode, as the stock market meltdown washed banks and balance sheets over the cliff.

Greed was clearly not Gekko’s best idea. He went to prison for insider trading, alongside a couple of the very real characters he was based on.

In hindsight, Mackey was terrified of losing money one year too late. Stocks had started tanking exactly 51 weeks earlier, from a high of 14,164 on the Dow, ultimately suffering a 53% disaster. That was peanuts compared to the 90% losses to the Dow stretching over the years of The Great Depression, but for modern investors, bad enough.

Obviously, market tops and bottoms are recognized only in the rear view mirror. It takes time for hard facts to illustrate the equations, which means this stuff is never that easy.

After a five-year fall from the highs of 2011, metals have been rising in dollar terms since mid-December, with a headline-grabbing hike the night of Great Britain’s historic Brexit vote to leave the European Union.

This week, both gold and silver took hard hits in dollar terms, causing stress for some precious metals stackers. And that’s the perfect classroom for today’s lesson, where we have some excellent teachers lined up.

Watching Wall Street

British commodities trader Andrew Maguire is the fellow who demonstrated bullion bank price manipulation to the world with his testimony to the Commodity Futures Trading Commission (CFTC) in 2010.

Maguire correctly identified intricate price changes hours before they happened, because he knew where the fix was in.

He now says the dollar-price take down earlier this week was artificially engineered by bullion banks to cover losses in the paper metals markets.

In other words, gold and silver were brought down in dollar terms through greedy, political manipulation, not by a loss of intrinsic value, and not by a loss of trust in metals.

Maguire’s advice today: This is a physical buying window for gold and silver that will not last long.

The classic lesson of fear and greed comes from The Battle of Waterloo, where French Emperor Napoleon Bonaparte was whipped by the British in 1815.

Nathan Mayer Rothschild had bankrolled much of Great Britain’s war against Napoleon, and had everything to lose if Napoleon won. Early reports from the battlefield convinced the London stock market Napoleon had been victorious, which led to widespread panic selling. But Rothschild had his own observer watching the battle, and reporting privately to him.

Knowing the British had won, he mopped up everything at sacrifice prices from terrified sellers.

The story, which some historians believe has been embellished, gave us the adage “buy when blood is running in the streets.

What is undisputed – of all the wealthy investors of that era, the one name surviving 200 years as a modern household synonym for massive wealth is “Rothschild.”

Buying low isn’t easy. It means going against the crowd. But it you think that’s hard, try selling high, when everything looks just great, before blood runs in the streets. Either strategy makes you a “contrarian,” which means your intellect has overcome the emotional clutches of fear and greed.

We know today the stock and bond markets have been stitched together and driven higher by free money from central banks funneled to Wall Street, all in a government effort to make the economy seem healthy when it’s not.

As Money Metals has been reporting for months, disciplined movers and shakers, one after another, are taking their money and leaving the stock and bond markets, dropping well-reasoned warnings of economic catastrophe along the way.

And incidentally, many of them also report they are stocking up on gold.

Is there a way to corral fear and greed? The answer is yes, if you’re talking about gold and silver.

See metals for what they really are – as solid savings in the only intrinsically valuable currency – and not as financial investments. Fear only enters the picture when you count gold and silver in dollar terms.

As for greed, that depends entirely on how many ounces and grams you can get for your paper money.

A reliable teacher in buying low and selling high is China, the world’s leader in reshaping the modern gold story.

The Chinese have patiently been buying low for perhaps decades, as other nations and investors lost interest in gold. As for selling – the Chinese are still hanging onto their gold. They aren’t selling.

So, how should sellers approach fear and greed? If you see gold and silver as investments, then sell when you’re ahead in dollar terms.

If you see gold and silver as savings, as insurance against calamity, then sell when there’s something you want more than your savings and insurance.

 *MoneyMetals.com columnist Guy Christopher is a seasoned writer living on the Gulf Coast. A retired investigative journalist, published author, and former stockbroker, Christopher has taught college as an adjunct professor and is a veteran of the 101st Airborne in Vietnam.

When the billionaires invest in gold should you do too?

Readers’ attention is drawn to my latest article published on Seeking Alpha:   Billionaires, Gold And Gold Stocks… They Are In For The Long Term, Should You Be Too?  In it I look at what the latest highly-publicised news of some huge investments in gold and gold stocks by some of the USA’s wealthiest elite means in terms of investment guidance for the individual investor.  Obviously this news only comes to light some time after these big investments have been made – and big gains will already have been made.  Is it too late to join them?

But, as a general rule – there are exceptions of course – these mega-investors are looking to the medium to longer term appreciation of their assets.  They have invested because they see the signs that the prospects for precious metals appreciation over the next months and years is positive, and for precious metals stocks perhaps even more so.  There have been huge gains in gold mining majors’ stock prices for example so far this year – a table from the article is appended below showing some of these, the gold price itself and, for comparison, one of the most followed gold stock indices (the XAU) and a junior precious metals stocks ETF (GDXJ):

Company

Price December 31st Current Price – May 30th 2016 Peak to date % below peak % rise since Dec 31st
Barrick Gold

7.38

16.62 19.37 14.2 125.2

Newmont

17.99

31.96 35.55 10.1

77.7

Goldcorp

11.56 16.60 20.15 17.6

43.5

Kinross

1.82

4.23 5.70 25.8

132.4

XAU

45.3

79.41 92.85 14.5

75.3

GDXJ

19.21

32.89 39.20 16.1

71.2

Gold Price 1061.30 1208.36 1292.98 6.5

13.9

 

While the recent slump in the gold price has meant prices have come back from their highs, all are hugely still in positive territory and the recent pullback may well present a great buying opportunity – particularly if you are convinced that the gold price has further to rise in the months and years ahead.

‘Buy gold and save yourself’

New article by me on sharpspixley.com – based on the views of Michael Lewitt of the The Credit Strategist, one of the most prescient observers of the current financial scene who gets behind the bs of the modern spin era.  Virtually any advice which comes out of politicians, central banks and their tame economists and from the corporate sector seems to be largely designed to create a positive interpretation, whatever the actual facts which frequently suggest the complete opposite.

The latest issue of The Credit Strategist – a much followed monthly subscription newsletter – which lays bare much of the economic misinformation fed to us all by compliant mainstream media ends with the following advice to any investor in a country which has a central bank – buy gold and save yourself!

To read the full article, click on SHARPS PIXLEY: Buy gold and save yourself! Lewitt

Gold and the “Oprah Effect”

By Frank Holmes – CEO and Chief Investment Officer, U.S. Global Investors

Oprah bought 10 percent of weight watchers

Many short sellers of Weight Watchers no doubt felt too down to look in the mirror this week after company stock unexpectedly ballooned nearly 170 percent.

You can thank (or blame) Oprah. The influential former talk show hostess bought a 10 percent stake in the weight management company, sending its shares up from $6.79 to $18.25 in as few as two trading sessions.

This is hardly the first time one of Oprah’s endorsements, whether verbal or monetary, has lifted a struggling business or product. There’s even a name for it: the Oprah Effect.

No matter your opinion of Oprah—her politics, her tastes—you have to admit that she’s a phenomenally savvy businesswoman, whose rags-to-riches success has helped make her one of the most powerful women in not just the U.S. but the world. As such, it’s important for investors to pay attention to her and other such “smart money” influencers. Their decisions often have the power to move markets.

So what’s moving gold right now?

Quite a lot, actually, from widespread doubts of a 2015 interest rate hike, to strong seasonal demand in India and China, to Russia’s military action in Syria. Gold also received a huge endorsement recently from billionaire Paul Singer, CEO of Elliott Management Corp., who said that the precious metal “should be a part of every investment portfolio, maybe five to 10 percent.”

(I always recommend 10 percent: 5 percent in gold stocks, 5 percent in bullion, then rebalance every year.)

But as I discuss in a previous Frank Talk, perhaps the most significant mover of gold right now is the weakening of the strong U.S. dollar against other world currencies. Gold and the dollar share an inverse relationship, and for the past year, the greenback has been putting pressure on the yellow metal, not to mention other commodities and natural resources.

Now that the dollar is showing signs that it’s starting to turn, however, gold is starting to turn heads.

Watch my video below for further insight into what’s moving gold.

Follow the Money: Billionaire Investor Makes Huge Bet on Gold

By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

This article is abstracted from a recent posting on the U.S. Global Investors website

I always advise investors to follow the smart money, and one person high on the list is Stanley Druckenmiller.

Second-quarter regulatory filings show that Stanley Druckenmiller, the famed hedge fund manager, just place more than $323 million of his own money into a gold ETF, at a time when sentiment toward the yellow metal is in the basement.

Investors should take note!

Druckenmiller Sees Gold as a “Home Run”

Druckenmiller has commented in the past that if he sees something that really excites him, he’ll bet the ranch on it.

druck

“The way to build long-term returns is through preservation of capital and home runs,” he said. “Grind it out until you’re up 30 to 40 percent, and then if you have the convictions, go for a 100-percent year.”

While I have always advocated for a diversified approach, this all-in approach has served him well. Between 1986 and 2010, the year he closed his fund to investors, Druckenmiller consistently delivered 30 percent on an average annual basis. Thirty percent a year! That’s a superhuman, Michael Jordan-caliber performance—or Ted Williams, if we want to stick to baseball imagery. The point is that words such as “legendary” and “titan” were invented with people like Druckenmiller in mind.

During his career, the man has made some now-mythic calls, the most storied and studied being his decision to short the British pound in 1992. This bet against the currency forced the British government to devalue the pound and withdraw it from the European Exchange Rate Mechanism (ERM), which is why many people say the trade “broke the Bank of England.” It also made Quantum, George Soros’s hedge fund, $1 billion.

And now he’s making a call on gold. The $323-million investment is currently the single largest position in Druckenmiller’s family fund. It’s twice as large, in fact, as its second-largest position, Facebook, and amounts to 20 percent of total fund holdings.

His conviction in gold can be traced to his criticism of the Federal Reserve’s policy of massive money-printing and near-zero interest rates. Such ongoing low rates push investors and central banks alike into other types of assets, including physical gold.

Concerns over government policy is why prudent investors hope for the best but prepare for the worst. I’ve always advocated a 10-percent weighting in gold: 5 percent in gold stocks, 5 percent in bullion, then rebalance every year. This is the case in good times and in bad.

Trump on Gold

Love him or hate him as a presidential candidate, Donald Trump has the same attitude toward owning gold in today’s easy-money economy. After leasing a floor of the Trump Building to Apmex, a precious metals exchange, he agreed back in 2011 to accept three 32-ounce bars of gold as the security deposit, according to TheStreet.

The U.S. dollar, Trump says, is “not being sustained by proper policy and proper thinking.” Accepting the gold “was an opportunity… to show people what’s happening with the dollar so we can do something about it.”

Trump and Druckenmiller aren’t the only ones adding to their gold positions right now. As I told Daniela Cambone on this week’s Gold Game Film, the Chinese government is now reporting its gold consumption on a monthly basis. In July it purchased 54 million ounces. This is significant in the country’s march to become a world-class currency that’s supported by the International Monetary Fund (IMF) for special drawing rights.

Both of our precious metals funds, Gold and Precious Metals Fund (USERX) and World Precious Minerals Fund (UNWPX), aim to offer protection against the sort of monetary instability Druckenmiller and Trump have warned us about.

Follow the money!