Bulls on Oil & Gold are sounding like a broken tape
Posted by Frugal on January 11th, 2007
I have been a bull in oil & gold, but I have not been so bullish since last December. And obviously this new year so far has been just horrendous.
I keep reading some of the articles from these oil/gold perma-bulls on financialsense.com, and actually I am starting to feel sick from “listening to the broken tape”. I’m just not sure how these people keep their bullish stance. And there have been a couple of bearish articles coming out, blasting the entire oil/gold camp. Will I be still so wrong at the end of 2007? Maybe. And maybe even worse.
These days, I am getting into this habit of expecting simply further losses in my portfolio. And just yesterday, I decided that I’m not going to look at my portfolio in the morning. I measured my own emotional sentiment. It has gotten to the “oversold” range. Unfortunately, the market can always become even more oversold.
Are you sea-sick from these tidal waves? I definitely am. Maybe I should throw in my towel, and start from scratch to re-position my portfolio again. Hey, better late than never, right?
If Fed is not printing so much money, I would much prefer to invest my money in more “normal” investment. Gold is definitely NOT an investment that grows its value over time. Gold is simply money, and the real money. An investment in one ounce of gold cannot never become 1.1 ounce of gold, while some other stock investment in companies can have the potential to grow its brand and earning power.
Well, enough of my rant. For now, I am still staying with the real money.
Occasionally I wonder, will I be documenting the process of losing my million dollar right here on my own blog, or will I be documenting the process of gaining another million dollar right here? There is quite a lot at stake indeed. And certainly there will be various successes and failures along the way.
Sometimes, total honesty about your own self is quite brutal. I do hope that whether I’m losing or gaining, my readers are on my side. At the minimum, I am trying my best to share my honest thoughts. And I do sincerely wish that everyone here can be prosperous and profitable on their takings.
Best luck.
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January 11th, 2007 at 11:03 am
Here is what I keep reminding myself.
If you are making trades, then you look for entry and exit points.
If you are investing, then you don’t worry about the short-term and the sell-off in oil, gold, commodities etc.
I’m not trading, I’m investing. If oil goes down, that’s fine, even if my stocks go down with it. That allows me to dollar cost average down and add to my position(s) as I see fit.
I used to worry because I made trades, and now since I invest, I would actually like the market to go down. Over time, it will go up, and meanwhile I’ll be adding more and more money, which will buy me more shares and over time I will come out a lot better. In the short term though my portfolio might look like a dead man walking, but you can’t make money without investing for the future.
I look at any short-term losses as debt, that I had to invest so that I can prosper over time.
=)
January 11th, 2007 at 11:39 am
Frugal,
I know exactly how you feel. FWIW, I expect one more hard down in gold/oil.
I’ve been picking up CanRoys lately as crude makes new lows daily and the $20-30 oil bears parade CNBC/Bloomberg. I’m with you on the long term trends but the short swings can be debilitating. That’s why I advocate small trades for emotional management.
I know you’ve written covered calls before, have you done that lately? I’m trying to incorporate that as well as put writing into my trading plan.
ML
January 11th, 2007 at 4:35 pm
I hear ya, man! I also agree with Ray that if your in the game for the long haul, don’t worry about the day to day action.
Find a good, solid company and buy its stock. As long as the company remains fundamentally sound, don’t worry about the waves!
-Grant
January 11th, 2007 at 6:16 pm
I have money invested in stocks in the Indian market. It’s been a on roller coaster since dec 15. But the stocks I hold are fundamentally good and messing with them makes no sense, unless I want to sell out. I stopped trading back in june, 06. Since then I’ve kept a hands off approach on the stocks. I occasionally read the motley fool and bigpicture rather than financialsense or safehaven.
January 12th, 2007 at 2:06 am
I tend to hedge the financialnews sense bias toward gold. They are clearly partisan on that topic. Silver currently, seems much more attractive, and energy (over the long term, even more so). I also agree with FSN’s assessment that the Yuan is poised to jump over the next year. Now if I can only leverage that assumption, through a smart investment. Any ideas?
January 12th, 2007 at 12:49 pm
I wonder if today’s rally is to be sold into
January 12th, 2007 at 4:36 pm
Well, I’m ever the optimist. The volume in XLE and OIH today is low. It’s semi decent in PMs. The bounce in base metals seemed to have occurred a couple of days earlier.
I don’t know if it means anything, but I’m out of my GDX puts and all back in now.
Frugal, if this ship goes down, at least you’ll have someone with you
January 12th, 2007 at 7:38 pm
Ray,
Definitely agree with you on the difference between trading and investing. It’s just that the ups & downs are quite big, long, and grinding.
Even when I’m not a trader per se, my emotion inevitably ties with the up and down of the markets to some extent.
January 12th, 2007 at 7:45 pm
Reality Bytes,
FSN is definitely bias towards gold & oil, which I do try to mentally correct the over-zeal. But with markets going down like this, it’s tough to take in their bullish view even just a little bit.
As for Yuan’s rise, I tend not to like to play with any currency. Currency rising/falling is a terrible dual edge sword. When it rises, it’s good short-term for the local stocks which are based in local currency (such as FXI), but it’s bad intermediate to long-term for the local stock/companies because they will lose their competitive advantages. Now, it’s very tough to tell whether market will look at the positive or the negative. Sometimes both, but just in different schedule. Even if you can do all the great analysis, you cannot determine the market reaction.
January 12th, 2007 at 7:51 pm
Novice,
My thinking is about the same. I think HUI & gold will be ranged bound if not falling along the general market making a top.
I try not to time the market too much, because timing the market is very difficult, and most of the time from my various experiences, you tend to miss the biggest upward move (but on the other hand, you may also avoid the bigger downward move). The million dollar question here is definitely whether you think it’s trending up or down in a longer term. Trading however can be beneficial to your portfolio & mentality by reducing the great volatility from buy & hold.
I let my investment speak for me, but of course, I’m just another human being full of emotions and faults, possibly making mistakes here and there.
January 12th, 2007 at 7:55 pm
Grant,
It’s easy to say, but very hard not to worry for any human being. As an investor, one should constantly re-evaluate the situations too. Things could have changed, without me or you knowing.
Sanjay,
I also read bigpicture, safehaven too. They are very good sites.
January 12th, 2007 at 8:02 pm
ML,
Guess we’re buddies not only on this blog, but also in our investments,
.
Looking at these losses, I am counting savings in years, not months. I keep telling myself that I’m still young enough, and that if I do make some mistakes, I have “years” to make it up (thru more savings). But of course, the KEY is not to keep making mistakes.
Anyway. Looks like the gold market has temporarily found a bottom. Still hang in there.
January 12th, 2007 at 9:04 pm
Hi Frugal, how’s it going? How come you don’t sound happy with your portfolio? You ended 2006 flat in your networth, but it’s a lot better than losing money, right?
January 13th, 2007 at 12:05 am
Rag2riches,
Welcome back.
It’s not so easy to put up a happy face when your total loss is in the order of $100K in just a few weeks.
You know, I’m just another human being, vulnerable to all things. But you’re right, I’m just so glad that it’s not worse. (Or maybe it will, but not yet….) But that’s just part of life that we all ride thru.
Maybe I just need to meditate more, so that I can totally separate my emotion from these stupid number of net worth or portfolio values,
.
January 17th, 2007 at 2:26 pm
Strange to see silver dive and then climb back to weekly open levels while gold held and surged today. Chris Laird said today that gold’s resilence in the face of oil, CRB, and USD is bullish for gold. Do you still think late February is a near term gold bottom?
January 17th, 2007 at 7:56 pm
I believe that gold/silver were knocked down in paper market, but when the actual physical buyers appear, “paper” has no ways of delivering the actual goods, and therefore the only choice is to go up BIG and fast to deter the physical buyers to buy.
I think going forward this kind of things will happen more often, and as long as the PM bulls are not liquidating, and take your delivery of physical PM, and MOVE your PM stocks to cash account where they are NOT allowed to be shorted, the manipulators will set themselves up in their own game.
I did a quick check. Last time gold went from $630 to $750. It only took 15 trading days. So I believe that it is conceivable that gold can go back to $750 again. However, I think HUI will be lucky to go back to 400 (Hoye’s target is 445, which I believe that there is less than 5% chance of that happening).
Oil should be bottoming, but it may put in a double bottom, in which case, late Feb won’t be the high for gold.
The stock market is looking weaker by days. I’m afraid that the toll bell will ring sooner than late Feb.
The problem with a high in gold in Feb is that I don’t see any drivers for that. From the chart, another low near HUI at 290 may be more likely than a high in gold. But I think the most likely scenario is that HUI/GLD continues to trade sideway and build an even stronger base towards late Feb. I put HUI>=390 at 7% odds, and HUI<=290 at 15% odds, while HUI trading in between 310 to 350 at 60% odds.
The wild card is of course a war. But if it happens, I hope that it happens when GLD is at $670 or above. That way GLD may break $750 and possibly $850. Decisively to break previous high is very important for an ongoing bull market. And I think time-wise, GLD needs a bit more time to break $750.
I think the best case for bulls is that
1. A Feb high which you should sell out, and pick up the pieces several months later.
2. A Feb low which you may want to up your stake a little bit.
The worst case is really having gold going up to semi-high like at $670, with HUI back at resistance near 350 to 370 range, and then falls down along with the general market. But this may be the more likely scenario. In this scenario, you wouldn’t know whether you should sell out or not. Because the chances of PM going up and down at that point (Feb at HUI=350 to 370) may be about equal. If it resolves bullishly later, it’s great. But if not, it may be another 4 months of $550 to $650 roller-coaster.
Overall, I want to say that it is actually better to have gold going up slowly than all at once. Almost all markets when it go up really fast, it simply needs to spend a lot more time afterwards to consolidate (bullish case) or put in a game-over (bearish). The longer the bull market goes, the bigger eventual gain you will get. You don’t want to go into an early game-over, and forfeit all the potential big gain later.
PM went up too fast in the early 2006 (partially thanks to the “Rich Dad” Kiyosaki who advocated buying silver at that time or slightly earlier). I think Kiyosaki basically called the end of the first phase of PM gold market. Be aware of all the calls of participants help you to distinguish which phase the market is at. Kiyosaki is NOT an early investor in PM, and his calls should have been considered the signs of the end of the first phase.
Now it’s the time for patience. I don’t believe the bullish trend in PM will break. Hold on very tight to your seat.
A period of underperformance should be followed by a period of outperformance. Just don’t put in an early game-over, since this PM “game” has the potential to last well into 2012 I believe. Let’s hope that we will eventually count our gains in multiple of 100%. There should be a couple of more X(multiples) if PM bull unfolds completely.
Timing the market is always difficult. Hindsight is always 20/20. But at every juncture, things can ALWAYS turn out differently.
Best luck.