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Time to Sell Gold

With gold having its worst beginning of the year in more than two decades, is it time to sell gold? Many big gold investors seem to think so. More than $5 Billion was sold from gold exchange traded funds in a month. Part of this may be that investors are moving their money from gold to stocks as the stock market is at all-time highs. When we wrote about investing in gold a couple of years ago, we noted that,

“There are a number of attractive options for investing in gold and there are pitfalls. Gold stock investing includes mining companies and derivatives. Many gold bugs will say that how to invest in the stock market during hard economic times is to invest in gold. However, the true gold bug will advise that you buy and hoard gold bullion or rare gold coins. A current scare tactic in the gold coin market is that “the government will come again for your gold.” Roosevelt signing his executive order to prevent gold hoarding is rewritten as the confiscation of gold. Gold peaked in 1980 after a decade of inflation and promptly dropped. Gold bullion has not made it back to 1980 prices adjusted for inflation despite a fourfold increase in value in the last decade.”

If you bought gold thinking that the world economies were going to heck in a hand basket you probably made some money, providing that you got in early and got out when prices leveled off in the last year or so. The reference above to gold peaking in 1980, falling, and remaining in the $200+ range for nearly two decades should be kept in mind if you are wondering if it is time to sell gold.

In what way is Gold a Profitable Investment, and When?

An argument for gold is that there is only just so much of the shiny stuff in the world. The argument continues that all of the more easily mined gold in politically safe locations has been mined and in places like South Africa they are mining gold over two miles beneath the surface (East Rand Mine, Boksburg). Thus the price of gold will go up, the proponents of gold say. Also the US and other major economies are in dire straits due to the slowly resolving recession. National budgets are constantly in the red and currency values are sliding. Proponents of gold constantly remind us of the Weimar Republic, the German post WWI government where inflation went wild and paper money became essentially worthless.

However these arguments played to investors during the first decade of the century and immediately after the financial collapse of 2008, the world is ever so slowly coming out of the Great Recession of 2008. Investor confidence in the stock market is a good measure of this. To the degree that panic drove up gold prices, gold is probably priced above the value that fundamental analysis would dictate. As such it may well be time to sell gold. However, before you do, carry out your own analysis and be clear in your head what you are doing, and precisely why.

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