Sell the Rumor. Buy the News.
September 13, 2006 -
I recently blogged about gold’s sharp decline but wanted to follow up with another blog so people don’t get my message twisted. I am still very confident that after this correction ends that gold will go much much higher. In addition, in my newsletter when I wrote that I had predicted the dollar’s climb six weeks ago, even though I believe it will continue to climb and strengthen for maybe another month or two, that doesn’t change my long term view that I think the dollar, as a fiat currency, is junk. Gold has increased volatility these days because of all the morons that run hedge funds that pump and dump commodities such as gold. Recently I’ve already read of numerous hedge funds that were forced to close due to millions of dollars they have lost for investors based on their speculative bets. Prior to the Gold ETF coming into existence just a couple of years ago in the U.S., it was difficult for hedge funds to speculate on gold in huge positions. Unfortunately, now it is not. And unfortunately, gold, already a traditionally volatile asset, has become more volatile because of this.
Ever hear the saying, “Buy the rumor. Sell the news”. In fact this is a strategy I often use with options when I decide to dabble in them though I never use this strategy with stocks (only because I don’t trade, I invest). In the case of gold right now, it makes sense to “Sell the rumor. Buy the news”. Gold has declined sharply because recently there have been many rumors that central banks have been selling gold. In fact, though it’s always close to impossible to pinpoint the exact origins of rumors, I wouldn’t even be surprised if central banks themselves are releasing these rumors to drive down prices so that they can purchase at their desired price. Currently it’s impossible to confirm the reliability of these rumors because central banks all over the world make it as difficult as possible for you to know exactly what they are doing with their gold reserves.
1 comment September 13th, 2006
Everybody always thinks that smart people make money. But that’s far from the truth because smart people often lack the proper kind of intelligence. Probably less than 1/10th of 1% in the world have the book smarts to become a nuclear physicist but every year, the CEO of Goldman Sachs will make 1,000 times more money than any nuclear physicist (unless that nuclear physicist is selling nuclear secrets to a rogue nation). In business school, unlike law school, there is virtually no correlation between graduation rank and future wealth. In fact, I’m convinced that all graduate level education, unless it is for a very specialized type of education such as medicine, engineering or law, is a waste of money and time when it comes to building wealth.
