Breakout

Sell the Gold Rally?

Jeff Macke
Breakout

Gold is pushing higher again this morning, tacking on big gains for those intrepid souls who bought the most recent panic lows. The yellow metal is trading back over $1,300 an ounce, having gained just more than 10% since bottoming near $1,200 in late June.

The question for investors and speculators alike is if gold has at long last marked the end of a wrenching nearly two-year pullback from the 2011 highs over $1,900. Lee Munson of Portfolio LLC says any rally marks a chance to make a graceful exit from their positions.

"Investors are confusing the fact that [gold] holds its value super long, hundred-year periods of time versus inflation versus making actual growth," Munson says in the attached video. "It just holds its value. That's not a reason to hold anything."

Of course the hardcore buy and hold gold players will lose their minds over Munson's characterization. Buyers of the SPDR Gold Trust ETF (GLD) have been handsomely rewarded over the last eight years, easily outperforming the major market indices. Munson is quick to point out that "long-term" doesn't mean buying the lowest point of the last decade. It means holding gold over decades.

By that standard gold doesn't do as well. Since 1940 adjusted for inflation the only period over which gold has outperformed stocks is 2000 - 2010; and that lead is slipping fast. History suggests gold is extremely volatile in shorter terms but dramatically lags U.S. equities for the truly committed gold enthusiasts.

Those who quibble with that analysis, parsing the numbers to maximize the apparent returns of gold versus stocks are missing the point. Gold has worked over shorter periods as a speculative vehicle but the die hard goldbugs have seen minimal returns at best and dramatically underperformed stocks.

Munson has simple advice for gold investors enjoying the terrific rally from the recent lows. Sell. "Exit out of the trade. Get serious. Get real."

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