Gold: Stock, Commodity or Currency?

NEW YORK ( TheStreet) -- Gold and I have a strange relationship, although I'm trying to make it better. I want to love the yellow metal, because it would be so useful to me if it would just act like a commodity, something I know pretty well how to value and trade. But it refuses.

It also stubbornly refuses to act like a currency, although it does act like one far more frequently. These days, however, gold more often runs straight off and acts like a stock, and a very high beta stock for that matter, running in tandem with other big risk assets.

Stock, commodity or currency? What's a trader to do? If it would only act logically, it would be a terrific addition to my portfolio, as well as for most of you.
Gold

The enormous volatility in the stock markets screams to us for a diversifying hedge, but gold hasn't given us much of one in the last few months, not since the stock market first fell off the table in August, when gold rallied strongly.(see chart below)

There, that's what we want: A gold price that ramps when the fiscal situation looks dire and can be used to protect our stock portfolios, at least a little.

But since that move in August, gold has again reverted to its risk asset profile, following stocks in lockstep -- and not helping us much.

With stocks right now acting violently, yet still range-bound, I've tried very hard again to warm up to gold. In late October, after the solid run in stocks, I tried a two-pronged approach, selling only a few high-risk names in my portfolio and buying gold for the first time in five years at $1,760 an ounce. I was almost immediately rewarded with a big move up over $1,800, where I sold 20% of my holdings.

Feeling confident that my new strategy would protect my portfolio, I sat back and watched both my stocks and gold plunge, with gold finally finding a near-term bottom under $1700, but recovering yesterday to close around $1,750.

This is not what we want: the last thing I need in my portfolio is another risk asset that is moving in tandem to stocks. I have sold much of my remaining gold over the past two weeks, and will dump the rest of my holdings today to register a small loss on the entire position. I still cannot get a firm grip on how to use gold in my portfolio.

And it should be simple. Chinese reserve easing and central bank activity yesterday amounted to a euro-QE inspired by the U.S. Federal Reserve. Both of these massively inflationary monetary moves came at once and I expected a far, far larger move of gold to the upside. Instead, it barely squeezed out a bit more than 1%, while other base metals like silver and copper soared.

Whether gold is so pricey that it is up against a wall of limited returns, or whether the trade itself has gotten far too systematic and commercialized, I don't know. But at least for now, gold is not doing what I need it to do.

That's okay, I guess. All things are pretty much as they should be. I will remain a pretty good tape reader and a successful oil trader -- and continue to find it impossible to understand gold.

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