NEW YORK (
) -- Gold has been on a wild ride the last couple of weeks. It went up $100 in a few days and then went down $100 in about 24 hours.
Early in the day on Tuesday we sold one-third of our clients' position in the
SPDR Gold Trust
based on sentiment indicators like the number of analysts that were calling for $3,000 as the actual price was approaching $2,000 and the fact that GLD surpassed the
SPDR S&P 500 ETF
as the largest ETF.
On a more fundamental level, a partial sale was warranted as our position grew well beyond our target after this most recent move to $1,900. Since then the price has obviously gone down quickly but the fear of US dollar debasement still exists which underpins the fundamental case for gold even if the next $150 is down not up.
The volatility in the last couple of weeks has created a lot of uncertainty on the part of investors which leads to indecision which makes for poor portfolio management. If you don't own gold now, should you buy it? Would it be better to wait? This dilemma repeats over and over in all sorts of investments and asset classes but rarely is a concrete suggestion made.
How to buy into a position, or an entire portfolio that matter, is a question that comes up from readers and clients alike. The future is of course not knowable which can be the foundation for building an entry strategy.
Gold is an important asset class because it often has a low correlation to equities and tends to go up in the face of certain external shocks. Regardless of the price today, I would expect that gold would go up tomorrow if there were some sort of meaningful terror attack, for example.
The key is to eliminate emotion from the process or at least reduce it as much as possible. One way to do this is to plan out partial purchases on a set timetable. For example, an investor, as opposed to a trader, could buy one-third of his or her intended position today, another third in two months and the final portion two months later.
Additionally a limit order for the second purchase could be placed at some low price to trigger ahead of schedule in order to take advantage of a fast decline. With GLD currently around $172, perhaps the limit order could be placed at $155.
Succumbing to emotion is off the table with this type of strategy, the investor only needs to be disciplined, which although not easy is easier when not clouded by emotion. There are many ETFs providing exposure to gold one way or another with the aforementioned GLD the being the most heavily traded.
iShares Gold Trust
would also be suitable and has a lower expense ratio than GLD. Another choice is the
ETF Securities Gold Trust
which, uniquely, stores its gold in Switzerland.
Our partial sale of GLD was based on a couple of sentiment indicators that have generally been reliable, calls for $3,000 gold is similar to calls for Nasdaq 6000 and GLD becoming the largest ETF is similar to
having been the largest company in the world for a short time in 2000, but the asset class is important in the context of a diversified equity portfolio.
At the time of publication, Nusbaum had GLD as a personal holding and client.
Roger Nusbaum is a portfolio manager with Your Source Financial of Phoenix, and the author of Random Roger's Big Picture Blog. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Nusbaum appreciates your feedback;
to send him an email.