Has anyone noticed the movements of gold, silver, etc… lately? As I write this, gold is almost at $1250. The gold price, silver prices, and the platinum price have all been going through the roof. Sovereign debt risk is the current topic of interest, and there is a tug of war going on between the profit takers and those looking to jump into the bandwagon.
I have been slowly investing in precious metals since the beginning of 2009, and I have built up a small stake in gold, silver, platinum, palladium, and rhodium. I saw how much the metals, especially palladium and rhodium, had fallen from their 2008 peaks, and I figured that they were very oversold. Unfortunately, I did not buy at the low point due to a lack of funds, but I did buy at lower prices than today.
Since my initial investment, I have been slowly adding to my position over time whenever the prices have dipped a bit. My current plan is to keep my precious metals investment at around 10% of my total investments. At each point along the way, I have slowly added as my total investments have grown, but I have never sold… until today.
I believe we are currently seeing a bit of mania going on in the markets. I have a friend who doesn’t follow the markets very closely, doesn’t look too much into investments, and even he is asking me if it’s a good time to buy gold and how he can do so. With all the interest in buying driving the prices up, I figured it’s a good time to finally take some profit! I have sold half of my stake in gold, silver, and platinum, in order to buy back at lower prices. If it turns out that I am completely wrong, then at least I still have some exposure to the movement.
My metals performance has been mixed. Gold has not done as well as I expected, though other metals have helped pick up the slack. The problem with palladium and rhodium is that there is an additional sales tax which immediately eats up 14% of your investment on top of the spread, which can be quite large. In spite of that, I have done well on these two metals; I don’t plan to add to my position nor sell, so I will sit on them for now.
Unfortunately, unlike my good buddy Mich, I cannot claim to have beaten the index. If I had followed the same investment strategy and invested in the S&P 500, I would have had a CAGR of 38%, instead of the 27% that I actually had. This is before brokerage fees and management fees, of course, but I still would have come out ahead.
So, how about you? My feelings on this are pretty mixed. On one hand, I don’t like to sell; I prefer to buy and hold, building my position over time. On the other hand, this looks like a good opportunity to take some profit and wait for a minor correction; it seems that sovereign risk fears are sending Mr. Market into a panic and many people are buying at the top. I’m also a little disappointed that I haven’t even beaten the S&P 500.
So, what do you think? Do you think this is the next leg up to $2000 an ounce? Or people are rushing in a bit too fast and we are due for a minor pullback? I’d love to hear about it!