Sven Carlin discusses the best gold trading strategy. He says, “I don’t know about you, but I am greedy when others are fearful, and fearful when others are greedy.”
The Best Gold Trading Strategy
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Michael Mauboussin's notes from his presentation at the 2020 Morningstar Investment Conference, held on September 16th and 17th. Q2 2020 hedge fund letters, conferences and more Michael Mauboussin: Challenges and Opportunities in Active Management Michael Mauboussin is Head of Consilient Research at Counterpoint Global in New York. Previously, he was Director of Research BlueMountain Capital, Read More
Good day fellow investors. I recently made the video about gold, the risk reward of investing in gold. There is a lot of interest in gold here on YouTube. And then there was a great comment by Richard B., hi Richard, that really put all the perspective into a few words. So I want to read that comment to you and then I want to discuss how to trade gold and especially how to put it let's say in a portfolio perspective in an all weather portfolio, what is also Dalio recommending and that would, let's say summarise my views and let's say the fundamental common sense view on gold.
Let's start. So Richard be said not all YouTube channels on on gold and silver are bad, Kitco for instance, is to be recommended, but I agree with Sven many of them playing on fear and promises. So here's my guide to how to use YouTube channels to hone in the best gold trading strategy.
Good gold analysts
One listen to interviews with Peter Hug on Kitco. A long time industry trader, knows his stuff, good advice on portfolio hedging. Whenever a CEO of a company is interviewed at a trade show and they are saying things are terrible as they were two or three years ago buy, whenever a CEO of a company is interviewed at the trade show and they're saying things are great as they are now sell.
Think about being contrarian also in the gold environment. Finally, as soon as you start listening to Robert Kiyosaki telling you to buy gold, and you believe him or you find yourself at 2am, watching some guy explaining how to use acids to get gold from old printer cartridges, stop, sell everything, leave your clothes on a local beach, fake your own, that it's time to get a life. Great comment from Richard.
Gold price predictions
And then there is something else I want to discuss. Citigroup just said on Bloomberg, that gold made top record that it was what, 7-8 years ago of 1800 it might reach and go above 2000. So that Citigroup pumping the gold price up now and that's what they do. In 2016, Citigroup says this could send go tumbling below 1000 again, so be very, very careful with these predictions.
And then just to conclude everything buy gold when others are selling again, same story all over is the same message on this channel be greedy when others are fearful, fearful, be fearful when others are greedy, common sense value investing over the long term makes you a winner. Everything else is betting, speculating and 99% of people unfortunately end up as losers.
Those that bought gold, gold miners in 2012, in exuberance are the big losers, have been the big losers over the last 7 years. Those that buy now, the risk is higher than it then it was a year-2 years ago when gold was closer to 1000. So that's the message here.
On an all weather portfolio, how to balance that what Ray Dalio says, well, you can say okay, I'll have 10% of exposure to gold. I prefer gold miners, because there is much more volatility and if you buy those big ones unlikely that they will go bust, but you can trade. So you say 10% to gold miners, when it becomes 12% you bring it back to 10%. When it becomes 8%, you bring it up to 10%.
Best gold trading strategy with miners
So you probably make 5 trades 4 or 5 trades in the year, you get the 2% 1% dividend yield that they get. And you have a return on that 10% asset class that you are exposed to gold, gold miners in this case, you get a nice 5-10-20% yield and your portfolio is hedged. That would be the most common sense exposure to gold that I can give you. Everything else, will gold go to 5000, 20,000, a million, everything else is speculation.
And if gold goes to 20,000 also other real assets, real estate, and things like that in your portfolio will also do well if you have good things. Perhaps gold can go down again, depending on what's going on depending on the restrictions on a lot of things that are things that we cannot know beforehand. We can focus on our portfolio how to balance the risk and reward in it.
And if you fancy gold, Ray Dalio's message from an all weather portfolio strategy, I would just go with good miners. I analysed them all and there are good miners like Polyus Gold, which is a stable minor, very low cost producer, and you can play on the volatility there without a problem. You add a few more and then Newcrest is also a good minor, and then you have that exposure in your portfolio. You lay back, sit down, don't get disturbed by the exuberance and panics in the market and simply rebalance the portfolio. Make money in a boring long term way.