Wednesday, 17 April 2013

He who fights and runs away

This is a quick note to say I've switched sides and I'm throwing in the towel. I think it's that gold shock that has unnerved me. No-one has a coherent explanation as to what happened or why.

It is ages since I gave up my subscription to Money Week and its sister publication the Fleet Street Letter - far too right wing for my taste and they both thrive on spreading gloom, doom and fear. Money Morning, Money Week's daily update opened with these words:

"They say that bull markets end with a bang, not with a whimper. 
We got our bang. The problem is, it was in the wrong direction. In just two days, the gold price fell by more than $200, from $1,560 an ounce to an intra-day low of somewhere near $1,330."

I fail to understand. The gold market has been in decline for months now and then it took a dive off a cliff. That is a bang but what direction was it supposed to be going in?

The article continues:

"It's estimated that some 400 tonnes of gold - almost 13 million ounces - were sold on Friday alone. That's about $20bn worth.
To put that in some kind of perspective, that is more than the entire holdings of the Bank of England, which are just shy of 10 million ounces. (Even after the debacle of the sales under Gordon Brown, we are the world's 18th largest holder). It's more than the holdings of Spain, Austria, Saudi Arabia, Portugal or Turkey. 
Of course, most of the gold sold on Friday was in derivative or paper form, and the same ounces may have been bought and sold many times over throughout the day, but the numbers are still extraordinary."
Well that is indeed amazing. But the article continues with no coherent explanation. And without explanation we have to conclude that something very fishy has happened. If it happened in gold it could happen in stocks, it could happen anywhere. I still stick with my belief that it was forced sales by holders who have been driven out of their positions by margin calls.

So even though the DOW is still hanging in there, just, I feel more comfortable sitting on cash (portfolio now 95% cash).

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