The Great Gold Convulsion Of 2017

If you want to understand the big story in gold, just type in the words “gold hedge funds” in Google.

  • “Hedge Funds Are Hiding Out in Gold” — November 6, 2016 (Bloomberg)
  • “Hedge Funds Are Dumping Gold Bets at Fastest Rate Since 2008” — May 15, 2017 (Bloomberg)
  • “Hedge Funds Pile Into Gold at Fastest Pace Since 2007” — June 1, 2017 (ZeroHedge)

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Gold has always been subject to speculative frenzies, of course. But never has the market been subjected to such extremes of buying and selling.

It’s like doing the laundry — rinse, wash, repeat.

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michael mauboussin, Credit Suisse, valuation and portfolio positioning, capital markets theory, competitive strategy analysis, decision making, skill versus luck, value investing, Legg Mason, The Success Equation, Think Twice: Harnessing the Power of Counterintuition, analysts, behavioral finance, More Than You Know: Finding Financial Wisdom in Unconventional Places, academics , valuewalkThe debate over active versus passive management continues as trends show the ongoing shift from active into passive funds. Q2 2020 hedge fund letters, conferences and more At the Morningstar Investment Conference, Michael Mauboussin of Counterpoint Global argued that the rise of index funds has made it more difficult to be an active manager. Drawing Read More


So what’s a gold stock investor to do?

My advice? Stand aside for now; don’t buy anything new.

Yes, gold bullion and gold stocks are still in positive territory, roughly 8% to 10% for the year as of last Friday’s prices. That’s a positive, for what it’s worth.

But gold stocks, as evidenced by the main gold stock indexes such as the VanEck Vectors Gold Miners ETF (NYSE Arca: GDX), are back to showing the same pattern of weekly “declining highs” that foretold deeper losses since the top of the gold bull market in 2011…

These brief rallies are like catnip, irresistible for gold investors eager to make sure they “nail the bottom” of gold’s deep decline.

Buyers pile in, convinced that this just might be the real deal. And once everyone is well and lathered up, someone pulls the plug, and all the hot money flows right back out again.

Last week was a great example. Gold stocks rallied hard on Tuesday, many up 4% to 5%. But there was zero follow-through in the next two days.

After Thursday’s trifecta of crises — the James Comey hearing, the British general election and the European Central Bank meeting — all passed without the world coming to an end, what happened?

It was “Game over, and thank you for playing” as yet another weekly “rally” fizzled out again.

That’s why I say the only winning move in gold stocks is not to play — at least not until we see share prices capable of holding onto hard-fought gains.

Kind regards,

Jeff L. Yastine