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Should You Be Shorting Gold?
The recent price drop of gold is making investors nervous, that much is clear. People are tired of the negative price action and want to head for cover.
Although it is an understandable response, it is mostly an emotional one that does not have a lot in common with rational thinking.
By going short you want to protect a position, which you do when your expectations with regards to return are going down; when the potential upside is declining. The goal is, in any case, to protect your profit as much as possible with a short position.
Hedging or going short is NOT something you do after a large correction!
Nevertheless, the questions do arrive in our mailbox. People are asking us how they can short gold exactly at the time when it is pricing near a multi-year low.
Even more, gold is listed at half price in comparison to the period when the Fed’s balance sheet was less than half of the size it is now...
In other words, shorting gold today is not a very smart move…
Not only because the downside risk is decreasing every day, but because the upside potential is increasing every day. That is a deadly starting point for a short position.
Because shorting carries risks as well. In the first place, the possible (temporary) return is limited to 100%. For gold this is also practically impossible, because the price of gold will never be zero.
The potential loss you can make on a short position, in contrast, is unlimited. There is no limit to how high the price of a commodity can go. Secondly, you can only short gold through derivatives. That means in many cases that there is leverage involved.
The benefit of that is that returns would grow faster, but the disadvantage is that the losses will too. If you are not an expert in timing the purchase and sale of a short position then, you are most likely going to be in trouble. Even the pro’s admit that.
Whether shorting gold is smart? We do not think so. It could even do some serious damage to your portfolio.
Ultimately we understand that the price drop is a painful experience for gold investors, especially those who keep a close eye on the daily gold price.
Our advice: if you are sensitive to volatility, do not check the price daily.
Gold should be a long term investment / insurance within your portfolio, not a trade you enter for a few weeks or months to make a quick buck.
That is not the way you think about your house, for example, unless you call your real estate broker every week for a new valuation… Probably not.
Treat gold the same way. Do not look at the gold price daily, but consider gold to be part of your capital; an anchor of your wealth. It will save you from many sleepless nights.
Then there is the point of protection against a lower gold price, which is absurd in itself as well. If real estate drops 30% in value, people are lining up to buy. In gold’s case, however, everyone runs off. Strange, isn't it?!
We cannot emphasize it more: the only way to protect yourself from a lower gold price is by taking advantage of it.
If you know that the price of gold can never go down to zero, you should be ecstatic when the precious metal is for sale at wholesale prices. The only thing you need to make sure then, is that you have enough ‘paper money’ to exchange for gold.
Trust us, investing in gold requires a different mindset. The same kind you have when buying real estate, land, or art.
And if you then are really interested to take advantage of gold’s low valuation, know that we are focused on investing in the Best Selection of Gold Mining Stocks. That is where the true value is hidden in the gold market.
Do not be swayed by volatility or the negative headlines in the media. Gold and gold mining stocks have always been the right choice. In a few years, in a new monetary era, your buying power will be heard!
>>> More info on the future of the gold price!
Sprout Money offers a fresh look at investing. We analyze long lasting cycles, coupled with a collection of strategic investments and concrete tips for different types of assets. The methods and strategies from Sprout Money are transformed into the Gold & Silver Report and the Technology Report.
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Nope.
The day is quickly coming when silver coins, packs of cigarettes & bottles of whiskey will be gladly accepted as payment in stores and dollars will be laughed at.
Do you pretend it's never happened before? It's happened before many times and now it's America's turn to feel the same.
I have a gun that looks very similar to the one in your avatar. Mine's bigger, though. It's like an Uzi, but fires .45, and try to carry 30 rounds of THAT around...
Unfortunately, it's heavy, hard to use, and quite innacurate when called upon to target particular enemies (as well as historically undependable).
The Messican and the Nigger gangs like to call it a 'street-sweeper', but it usually ends up killing innocent by-standers (such as sleeping children) as they try to enforce their control of the drug cartel/government/CIA sponsored terrorism memes.
You DO realize, of course, that the .22 caliber is the choice of assasins?
I carry in my wallet a one-ounce silver coin. Sometimes, I pull it out when paying for my gasoline (depending upon the demeanor of the clerk), and there are a lot of 'pimply-faced' young clerks whose eyes light up, when I ask them about real money as I transact my purchase in fiat currency and show them my coin, which is worth; what, 19 USFEDs or so?
NO, the 'government' DOES NOT hold all the guns and the oil (AND, they do NOT hold any gold or silver). If they DID, they would NOT be trying to get YOURS.
Silly human....
Buy gold, short the paper. Worked well so far.
BUT... BUT...
If I have to take a shit, it's difficult if I run out of paper, and trying to wipe my ass with metal is SO SCRATCHY! Couldn't you just compromise, and put the paper on a roll, or something?
AAH. THANKS, HELICOPTER BEN!
Of you hedged by buying nickel you've covered your losses and then some.
Perhaps the better question is "why is Government shorting gold?"
That's the height of insanity!
With interest rates this slow...yet the TED spread still very healthy...the Government is simply being suicidal by not putting itself back on a gold standard.
That secures their borrowing authority a hell of a lot better than trying to "manage" interest rates.
Has the added value of putting a bid (and then some) in your currency.
That would require having some gold.
After 30 years of suppressing gold via leasing it, the
cupboard is bare.
Since they kept the physical market somewhat together, up 'till now, the actually must have had "some gold", even if some or all of it is/was not theirs (ask Germany). So the question becomes, how much physical gold have they left (if any) to continue the charade? When they run out, it'll be another Nixon-August-1971-event, and then things could go so quick that the true shorts (the ones that sold all the physical gold) might be in dire straits. That reminds me of... paper gold is a form of alchemy...
http://www.youtube.com/watch?v=Ikea2kYK4ug
Why do they have to have some gold? Nobody has peeked inside Ft Knox since 1953. Until an unbiased, third party performs an audit, then can say whatever they want.
Snort
We stole Germany's gold and sold it into the market to drive gold prices down......you can only do that once.
At some point I think they're gonna want it back.