In a former life, I was (among many other things), a marketing communications director for a major Midwest mortgage banker. This was well before the sub-prime mortgage meltdown, and the company I worked for never, so far as I know, got involved in these dicey instruments.
I bring this up today because of a lesson taught to me by the CEO of this corporation. His marketing philosophy was simple: when interest rates are high, mortgages can be a tough sell, in which case you should keep your advertising dollars in reserve. But when mortgage rates are low: damn the torpedoes, full speed ahead. Spend. Spend. Spend.
I am reminded of that because the folks who like to sell gold as an “investment 
opportunity” are now flooding television networks with spots designed to turn your precious greenbacks into their gold coins. It’s a page straight out of my former CEO’s hymnal. The gold market is hot; now’s the time to pour the bucks into advertising (regardless of whether you’re selling your customers a boatload of depreciating metals).
Now that gold is hovering around $1100 an ounce, gold merchants (like Monex) and are inundating the airwaves in hopes of getting you to jump on the goldbug bandwagon (Omigod! If you don’t buy now you’ll miss this bonanza!)
Bastards.
Of course they want you to snap up all their moldy Krugerrands. They’re no dummies. They know a sort gold fever is sweeping the country. They can reap fortunes selling gold that likely cost them much less. Their profits have presumably never been greater as national media spew out glowing reports of the yellow metal reaching rarified new highs.
However, nobody but a dope, I should think, would be buying gold when it’s well beyond its 52-week high and 50% higher than its price last year at this time. Get a load of these charts from Kitco.com and you’ll see what I mean. Scroll down and pay particular attention to the 5-year gold chart. It shows that gold topped out at $1000 a little more than a year ago and then fell $300. That’s 30% off its high. Luckily, I sold at the peak, and repurchased it again at $770, near the next bottom.
All of which brings us to the present market. I’m all for making money, but I think buying gold Krugerrands (or any gold bullion) at today’s price of $1135 an ounce is foolish. I could be wrong, but I think that’s buying at the top. And that’s diametrically opposed to the trader’s mantra of buying low and selling high. In fact, it’s more like the dot-com mantra which, if you remember, was “buy high, sell higher.”
Quite obviously, though, nobody knows where gold will price out a year, a month, or even a week from now. That’s why my prediction is probably as valid as anyone’s. And I expect gold to recede, back-pedaling to round $800. That’s when I’ll be a buyer.
Till then, I’m holding holding my greenbacks in reserve until the market, like my old mentor suggested, turns around and opens a buying opportunity.
Charlie, the Runaway Trader
Hi Charlie, how are you? I really enjoy your blog and suggestions… I’m moving my first steps in the trading world wishing to free my future from “stable” job. I love traveling.
I’m about to migrate to another broker because my actual one is expensive on US stocks (19$ fix!). Do you have any suggestion?
I’m at the beginning so I don’t trade very often… only on the very excesses..
Where are you going next by the way?
p.s.: sorry about my poor english
Hi Max. Thanks for your note and sorry to get back to you so tardily. Nevertheless, I blogged about your inquiry. See the latest entry. Maybe others will offer suggestions. Best of luck to you.