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
parabolic above wkly though
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