comments on GOLD daily reckoning - What may be bad news for bonds is, as every Econ. 101 student knows, good news for gold...at least most of the time. Curiously, bond prices and gold prices have been rallying arm-in-arm for months. But that dance is likely to end very soon. The nascent inflationary trends developing in the U.S. are likely to be VERY bad for bonds and VERY good for gold. That's why most of us at the Daily Reckoning are fans of the yellow metal. Even so, we can't help but wonder when gold's awesome, months-long rally might take a breather. Was yesterday's sell-off the beginning of gold's pause that refreshes?
- Given gold's dramatic run-up, an equally dramatic sell- off wouldn't be too surprising. But longer term, we wouldn't want to bet against this precious metal. Gold is in a long-term bull market, until further notice.
- Long-term investors who'd rather not bother trading every "jiggle" (Jimmy Roger's term) in the gold market, will be heartened by the observation of Frank Holmes, CEO of the mutual fund company U.S. Global (Nasdaq: GROW). Holmes calculates that, over the last 30 years, an investment portfolio containing a 20% allocation to gold stocks has produced a higher return with less risk than a portfolio dedicated entirely to the S&P 500 Index.
- An 80% mix of S&P 500 Index shares, says Holmes, together with a 20% mix of Toronto Gold and Precious Mineral Index shares, achieved an average annual return of 12% from 1971 through 2002. That return was higher, and less volatile, than a pure S&P 500 holding.
- History is nice, but most of us would prefer to know what the optimal portfolio allocation might be for the NEXT 30 years, rather than the last 30 years.
- Faithful Daily Reckoning readers, we suspect, would prefer kissing their sister (or brother) to allocating 80% of their portfolios to S&P 500 shares. And we'd hate to have those sorts of choices made on our account. So let's skip over the S&P 500 part of this discussion and focus only on the gold part.
- For the next 30 years, some meaningful allocation to the yellow metal seems like a good idea. Whether the optimal weighting might be 20% or 2% is anyone's guess. But if the dollar is past its prime - which is a possibility - even a hefty 20% allocation to gold stocks would seem inadequate.
XAU..stockcharts.com
CCI oversold.....usually recovers from these levels
