A big part of successfully trading on the markets is revisiting certain principles that although crucial can be forgotten when they are most important.
A great example of this is holding onto a small allocation to gold for its low to negative correlation to equities. I’ve written about this regularly for more than ten years with the main points being that gold continues to not look like the stock market. That was true ten years ago when equities were flattish and gold went up, it was true during the worst of the financial crisis when stocks went down a lot and gold was kind of flattish, it was true in the most recent bull market when equities rocketed and gold sunk.
It is playing out as true now as equities have rolled over for the last six months while gold and mining stocks too for that matter have gone up. Play around with some ticker symbols on Google Finance and you’ll see that the S&P 500 is down high single digits for the last six months while ETFs tracking gold are up about 10% and ETFs tracking miners are up in the neighborhood of 30%. While I don’t think too many investors will want to take on the volatility that goes with the miners, the point is still the same.
I continue to believe that if gold is the top performing holding you have then chances are things are going so well in the world and that seems to fit right now.
Questioning gold’s role as a portfolio holding gained momentum in the media and blogs as equities continued to rally which is in part about impatience which to the intro of this post is one behavior that does investors in.
This ties into a slightly bigger concept or investing belief about defense being more important than offense or as I’ve described it; smoothing out the ride. Using gold to help with that objective can be done without having to be very tactical with it; you own it and without having to figure out when equities might turn down, you have the position in place for whenever they do.
Clearly this does not resonate with everyone; if it does not resonate with you then you probably don’t own any gold and if it does resonate with you, then you do have some gold but the time to make this decision is not now when volatility is sky high and emotions/indecision might also be elevated.
Bigger picture still, is the importance of remembering why you chose whatever you chose for your approach to investing and knowing what type of market environments play to your approach’s strengths and weaknesses.