22 August 2012 15:00

We sold some gold yesterday into the strength at $1,640 (making a minimum $60 profit on each ounce bought at a maximum price of $1,580). We are now in a very strong emotional position. If gold continues to increase from here we will be happy that our core holdings are continuing to increase in value. We will also continue to lightly sell non-core holdings.

If the gold price turns round and falls back to under $1,600 then we will be happy to buy more gold into the weakness.

The secret here is that we are admitting, loud and proud, that we DO NOT KNOW where the gold price is going in the short-term. If we believed that we KNEW, then we would allocate more money than we should at a particular price point and we would probably lose money.

If we KNEW that gold was going to crash back down then we would probably have sold deeply into the strength of $1,640 (we might even have sold some of our core holdings, content that we would buy it back again later at a much lower price). If the price then surged ahead we would likely panic and rue letting go of so much gold at such a low price. We would be tempted to buy more, at the higher price, to prevent getting left behind.

If we KNEW that gold was going to surge ahead then we would probably not have sold one ounce into the “mini” strength. Why would we, when we could sell it later at a much higher price? If the price then, rather than going to the moon, fell back down to under $1,600 how would we react? We would kick ourselves for not taking a profit when we had the chance. We might now panic and KNOW that gold was going to fall further and sell what we should have sold at $1,640 at a much lower price. Or, we might now KNOW that gold was going to bounce straight back to $1,640 and buy more so we could sell even more at the higher price when it arrived. We would be over-allocating funds at a single price point.

We therefore struggle and fight to remind ourselves to believe that we do not know where price is going, in the short-term. We do not place money on the price curve in anticipation of its future direction, but react calmly to where it IS on the price curve.

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