One of the purposes of this blog is to educate myself. I have been educated. I'd like to address the issue of gold funds right now. I recently suggested three gold funds that I thought were good buys: XAU, HUI, and GDX. Apparently, they are more sensitive to price changes than the previous ETFs I suggested: IAU and GLD. I made a mistake. To illustrate, let's look at the return (or loss) from both. Here's the first group:
I recommended XAU at a price of $158.26. Since then, we've seen a drop to $147.25. That equates to a loss of 6.95%.
I recommended HUI at a price of $368.93. Since then, we've seen a drop to $345.79. That equates to a loss of 6.27%.
I recommended GDX at a price of $42.99. Since then, we've seen a drop to $40.30. That
equates to a loss of 6.26%.
Now let's look at the losses incurred by the second batch over the same time period:
IAU's closing price on the same day of the recommendations was $67.43. It closed trading today at a price of $65.67. That equates to a loss of 2.61%
GLD's closing price on the same day of the recommendations was $67.47. It closed trading today at a price of $65.65. That equates to a loss of 2.70%
What I see here is that the first two funds I recommended seem to be much less susceptible to the volatility seen in the precious metal market. The first three funds lost much more equity than the last two. For this reason, I recommend that the funds I first suggested be the ones to focus on for your portfolio. I hate flip-flopping so soon after recommending them, but sometimes it only takes a few days to analyze the implications. XAU closed at $147.25. HUI closed at a price of $345.79. GDX closed at a price of $40.30. Reallocate your portfolio to reflect removing those funds and place the diminished proceeds into IAU and GLD; over the long term, gold will continue to rise. I will record the losses of the other three in shame. (And here I thought I was making progress...at least I have the homebuilders)
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3 comments:
Hey Kiddo!
There's nothing wrong with holding both types of gold investments depending upon your time horizon or other strategies. Check me on this, but I believe the inherent difference between the types of funds is that the XAU's represent the miners (stocks) which are leveraged to the price of the metal (represented by the ETF's). You neglected to mention this in your blog. If you believe that gold could rise significantly in the near future, then holding the XAU's will give you more bang for your buck (and more risk!). But that is the nature of the game. Anyhow, follow your instincts and don't be too quick to flip-flop!
You're right. I failed to identify this point. In my initial recommendation, I touched on the composition of the funds, and I agree that it's the reason for the increased price swings.
Previously, I've recommended two mining stocks, both of which make up a considerable part of the three funds discussed in this post. For now, with the stock market being as unpredictable as it has been of late, I'm weary of holding funds that are heavily invested in mining stocks. If gold and silver advance as much as I expect, I could understand loading up on them just prior to earnings reports.
But for now, I'd hold off. Just as the psychology of the market can drive unreasonable stocks up, it can drive reasonable stocks down.
As a side note, I'd like to point out that these funds were on the cusp of the seven down rule: hold losers until they go down seven percent and hold winners until they exhibit a seven percent decline. I've already been bitten in the ass hard by Apple and Google. I'm determined to not let that happen again.
I greatly appreciate your comments; especially when they keep me straight on facts. My laziness in not attributing the reasons for the volatility keeps me honest, while at the same time engraving the lessons in my head. It's all about edu-ma-cation....:)
I have to add that the big problem of shifting positions so many times is the trading fees. Fortunately, I know of a company that alleviates the problem. Investors need to look at www.zecco.com. Ten trades per day and forty per month are free and there's no minimum balance required. After that, it costs $3.50 per trade. There are stipulations but they don't pertain to stocks and ETFs. I'll write a better review in a few days.
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