Noreen great posts there are many reasons to hold gold as part of your portfolio and you hit some key considerations in your post. In the current economic environment gold holds a position that no other commodity or security holds.
Certainly there are many sitting on large profits, it's been a bull makret. Then again you have to ask are any of them taking profits in gold to cover losses elsewhere.
Fred, read this, you will see what I'm talking about:
Then I guess it would stand to reason that if some of these hedge funds have held this gold for a few years or more they could have turned a very nice profit by selling now.
Without knowing the specifics, many hedge funds that have been underwater this year (negative gain) had substantial gold holdings. The most recent onset of the financial crisis certainly must have triggered some margin calls. If you are a hedge fund with a deep loss and you are sitting on substantial gold (which is still up for the year), and you get a margin call, it is one of many assets that you will be selling to meet those calls.
In addition, the gold market is relatively small so if you have a forced seller what you see are enormous declines in price in a compacted amount of time. This has certainly been a characteristic of the gold market over the years.
Remember that gold started the year near $1,400! It got as high as $1900 and now sits near $1580 So many of the people selling are still taking profits.
Scott, the point about hedge funds is a good one, I had not even considered that. So you think they are selling gold to try and get back in the black, so they can show an overall gain for the year?
One of the problems with the historical data on gold is that through much of the time period it has been on a fixed gold price. You can see that in these excellent charts which show how much the gold market has changed since 1971 since gold was upegged from the currency.
Gold is still in a bull market. The corrections are vicious, but typically when the mainstream media has been freaking out about gold has been the best time to buy it. I think the market will sort itself out in the new year as it's likely a lot of this selling is from hedge funds that had losing years that are under pressure.
The historical data here is nice, and it really puts things in perspective. Its nice to know that gold will still have buying power regardless of its value. But, speaking for myself I think the gold market is in a bit to much flux for me right now. For some reaons, with gold I am having a hard time getting past my gut reaction to avoid risk regardless of the data.
It will be interesting to see how gold continues to perform going forward. I am wondering whether we are starting to see the gold bubble pop as some have perdicited.
Yes thank you for posting this information Noreen. Historical evidence would most likely provide an accurate analysis of how gold will perform this time around.
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