Today, gold is holding at around the $1,670 level. We are therefore waiting to see if we are going to get to our next sell level of $1,690 any time soon. Of course, we may see some heavy profit taking and gold could fall back down to under $1,640. What would we do then? Yes, we’d buy the weakness of course.
Don’t forget, we sold into $1,640 only three days ago so we are not going to re-purchase at that level – not after such a short amount of time. If gold traded at around $1,670-$1,700 for a protracted period we would “re-set” our baseline and would then see a drop to $1,640 as being $50 of weakness. A move back down in a couple of days does not count in our books and we would be looking for greater weakness in order to continue buying.
This may seem like the barbarous relic being over picky, but we have found that this method has great merit and we stick to it through thick and thin. It works for us.
The minutes of the last FOMC meeting were released yesterday. The minutes showed that the doves may well be winning the battle within the Fed with regard to further quantitative easing. The result is that gold has moved some $30 to the upside.
Does that make us regret our decision yesterday to sell some gold at $1,640? Absolutely not! We sell into strength and book profits. We sell lightly into small strength and heavily into large strength. Yesterday saw some light selling and we shall sell some more if and when gold hits $1,690.
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.
Gold is slightly up today and is currently sitting at $1,627. When price hits $1,630 we shall sell some of the gold that we purchased at $1,580. These holdings are non-core, trading positions – not core positions that we are holding with an iron grip and have no intention of parting with, whatever happens.
This is one of the fundamental tenets of our investing philosophy. Our core holdings are not just nominally separate, they are kept physically separate in different trading accounts. We generally do not spend much time thinking about or looking at the core positions. They were generally purchased a long time ago and will not be sold until we believe that the current gold bull market has run its course. Their purpose is to enable us to directly benefit from the entire price appreciation (whatever that may end up being) without the remotest chance of missing out by being out of the market at the wrong time.
The purpose of the non-core holdings is to enable us to benefit from the volatility of asset prices. It enables us to buy weakness and sell strength without the constant worry that we have not bought at the exact bottom of the trading range or sold at the exact top. It enables us to trade almost without emotion which, we believe, is the only way to consistently make money in the market.
Well, we’re back after a week away in Cornwall UK. We have kept in touch with the gold price whilst we were away and see that we haven’t been missing much!
We suppose that the current lack of volatility makes sense. The price chasers that bought in to gold in the $1,900s probably sold out in the $1,700 – $1,800 area and are currently sitting out on the sidelines waiting to see what happens. Those of us that bought at much lower levels (and operate a buy weakness, sell strength mechanism) have already invested what we want to at this price level and will not be trading until price changes significantly.
We still feel that our favourite gold stocks are significantly on sale and so are continuing to accumulate at these levels.
Gold is currently at just under $1,612, and we at barbarous relic are watching and waiting.
We are currently taking a bit of a summer break so posting will be erratic for the next week.
Gold is at $1,617 this evening. We are beginning to wonder if we should tighten our buy/sell increments somewhat as gold seems to be stuck in a very tight range. We are currently working with a $50 increment (i.e. what we buy at $1,580 we sell at $1,630) but this isn’t working at the moment.
We remember, however, that this is a marathon and not a sprint and as this gold bull progresses we feel that we will be increasing this increment to the hundreds of dollars rather than decreasing it. We watch and wait.
Gold is currently sitting at $1,614, so we watch and we wait.
Gold is pretty much unchanged this evening at around $1,612. Gold stocks are having a fairly good day so we may have to start thinking about selling into the strength soon, but the time has not quite come for that yet. It will be strange to see these positions in the black again and I am sure that when it is time to take some profit we will regret not buying more when the prices were low. This, however, is what it is like to invest.
The trick is to understand that you cannot KNOW where price is going. Really understand and believe that fact. If you have a feeling that price will correct to ‘X’ and then rebound up to ‘Y’ and it does just that, remind yourself that coincidences do sometimes happen – next time it will most probably not.
Gold is currently sitting at $1,613 an ounce. We will initiate some weak selling if/when gold hits $1,630, but not before.
It should be noted that when we talk about selling into strength we are refer to non-core holdings. These are quite separate from our core holdings, which we purchased at much lower prices and intend to hold for as long as gold continues to be a worthwhile asset.
Non-core holdings are for trading – buying into weakness and selling into strength. This method is the logical conclusion of admitting to ourselves that we don’t know where the market is going in the short to medium term and try as we might, we are never going to be able put all our money into market bottoms and sell everything at market tops.
We believe that this bull market in gold is going to continue for many years to come and that by the time it is finished, gold is going to be priced many times what it is now. We will therefore NEVER sell our core holdings in order to be “in the market” when this time comes.
Non-core holdings are used to utilise market volatility along the way. When the price falls we buy more, increasing our total holding. As price increases we sell non-core holdings, generating profits – not forgetting that our overall wealth is also increasing due to the core holdings.
This is the only way we have found to consistently make money in the market.