Gold recently traded to a new closing high, at $1,238 an ounce. In the process, it took out prior technical resistance, and was accompanied by decent trading volume. That prompted a discussion here about the yellow metal this past Wednesday. We’ve held gold in our portfolios for some time as both insurance for a wide array of negative scenarios (hyper inflation, systemic crises, terrorism, currency debasement, etc), as well as the potential for a mania to develop in this asset class over time. Gold hasn’t always worked for us against our benchmark, due to its low correlation to equities, which can make relative performance versus equities very fickle at times (one of the things we like from a diversification and hedging point of view, but hate when it costs us versus our benchmarks).
In our Wednesday meeting we took a few minutes to talk about what was driving gold’s impressive performance of late. In other words, is this a breakout or a fake-out that we are witnessing in the gold market, and what does it mean to us? Should we sell into the rally, pile into the momentum trade, or do nothing at all?
The chart below gives a glimpse into a number of the key issues we discussed at the meeting. At the end of the discussion we decided to leave our positions in place and take no action at this time. If you are a client in Pinnacle portfolios, while we ended up not making a change to our allocations, rest assured that it wasn’t because we weren’t watching or talking about the potentially golden opportunities that moving markets create for our clients.
