Be wary of the gold trade…

October 20, 2009

Looking out a few years, I’m as bearish as anyone, I admit. But I’m a little worried that suckers could get caught in this gold rally. A hedge-funder I spoke with at the Value Investing Congress said half of the sessions were devoted to doomsday scenarios, precious metals, etc. Today there was a keynote from Eric Sprott of Sprott Asset Mgmt. Fully 70% of his assets under management are in precious metals, silver and gold.

But he’s been in the trade for 10 years. And Einhorn built up his gold position long before it leaped past $1000.

While I believe that gold is a good insurance policy to hedge sovereign risk, I think it could be some time before that thesis really plays out, before we max out the national credit card as it were. In the meantime, gold’s price could be highly volatile.

Right now, I suspect we could be seeing a lot of herding into gold as retail investors and other latecomers pile into the trade.

Folks inclined to jump into gold should be very careful here.

(As always: don’t make any buy/sell decisions based on anything you read in this space, nor construe anything written here as investment advice. You don’t want to anyway….I’m a shitty market-timer.)


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I suspect the number of gold bulls at the Value Investors Conference was a function of the organizers bringing in managers with good recent performance. A couple of years ago Rich Pzena said at the VIC that Freddie Mac common was the single best investing idea that he’d ever had. I believe the stock was in the high 20’s at the time. Has Pzena ever presented at another VIC since then?

Have the organizers of VIC ever compiled a performance record of the recommendations made at their conferences? I have received emails from them promoting future conferences and notice that they highlight the best recommendations (with the aid of hindsight of course) from recent conferences and don’t mention the Freddie Macs.

Posted by DP | Report as abusive

Gold and silver are great investments but now is not a good time to get involved due to historic highs (though silver can get higher and has traded around $20 a while back). These markets will fall again especialy as the stock market is starting to do well and most investors prefer stocks to commodities. You’re best bet is to wait for them to crash, buy and then wait for the next metals frenzy.
This is also true for all those people who believe that the US govt is about to crash and paper currency will be useless. This will not likely happen any time soon due to the collective will of 10’s of millions of americans (the real people who make money have value) and if it should happen many people will just barter for things of real value like food and clothes for in the end gold and silver are equally less edible and wearable (as clothes) as our fiat money.
all forms of currency require a central govt to be valuable, even gold and silver.

Posted by Brett Farrell | Report as abusive

Well said Brett Farrel.

We should just distinguish between nuggets and stocks of mining companies.

Seeing that we venture towards advice, somebody planted a platinum seed in my head.

Posted by Casper | Report as abusive


as opposed to what ? rushing in to buy AAPL at alltime high ? never mind we have Cramer on TV RIGHT NOW hoping that gold falls below $1000 so he can buy more …….

your point is well taken but for those sitting on US Dollars in a CD or money market fund watching it devalue by the day , they are losing each day they do nada .

Posted by divvytrader | Report as abusive

[…] Is the gold trade getting crowded?  (Rolfe Winkler) […]

Posted by Wednesday links: cash returns Abnormal Returns | Report as abusive

gld broke out, big vol

bond funds took in huge bucks, too.

it’s when they pile out of bonds and into gold that you have to worry about it being too crowded.

i may have my facts wrong, but then so does obama

Posted by yo | Report as abusive

[…] Is the gold trade getting crowded?  (Rolfe Winkler) […]

Posted by Wednesday links: cash returns | Financial engineering resource center | Report as abusive