Dirty Little Secret: Picking winners is relatively easy compared to controlling losses. Once an investment has racked up gains for an investor it's extremely difficult to sell. When a position has been a loser since day 1 it can be even harder to get rid of it, if only because doing so is tantamount to confession of defeat.
Such has been the case with gold. Over the last decade an investment in the SPDR Gold Trust ETF (GLD) has risen 200% compared to about 50% for the Dow Jones Industrial Average (^DJI). What really set the hook for gold lovers were the five years of relative performance of the GLD over the five years ending at gold's peak in September of 2011. Over that terrifying period of global economic history gold rose 200% while the Dow was virtually flat.
Since the peak gold has dropped 25% while the Dow is up over 35%; a monumental out-performance. The biggest problem for the yellow metal over the last two years has been the stubborn refusal of inflation to appear in any tangible way. Fed money printing was supposed to push gold higher relative to paper money. Never happened.
Now with equities finally hitting a wall the oft-bitten gold bugs are getting antsy to buy again. In the attached clip KKM Financial founder & CEO and CNBC contributor Jeff Kilburg lays out the technical levels professional commodities traders are watching.
"It's locked in this channel - $1,353 to $1,422," Kilburg says of physical gold in the attached clip. In layman's terms that means gold prices per ounce have been finding resistance at former support, but buyers on major dips. Professionals will play such ranges every chance they get because it offers a defined risk. Buy at support (mid-$1,350's) and sell at resistance ($1,422).
For those not inclined to trade, Kilburg is still a believer in the inflation thesis for gold. "Inflation will rear its ugly head," he insists, "anytime in 2014 or 2015 - it's coming and it will be fierce".
In the absence of fundamental fact technicals rule. The short term trade is buying in the mid-$1,300's and taking a loss if spot prices drop under $1,320. The upside target is $1,422.
Unless or until either side of that range is broken, it will be time reassess. For now respect that charts and save your love for family members.