We got a lot of comments on last week’s column about what gold did following the Fed’s interest rate announcement. In case you had a GREAT weekend and you’ve completely forgotten about it, the Fed raised their base interest rate by 1/4 point. Gold responded by going up rather than down. Your friendly Gold Enthusiast noted that fundamentally gold should go down when interest rates rise, because in a logical world capital would flow toward where it can get the highest return.
As expected, our virtual mailman had a field day with all the notes and comments. And not surprisingly, from both the “up” and “down” proponents.
Both have good arguments of course. The down-siders have the fundamental argument along the lines stated above.
The up-siders point to history. Historically, when the Fed raises rates, gold goes up! Now why would that be?
As noted in previous Gold Enthusiast musings, rising interest rates add cost to borrowing money. Rising costs increase uncertainty about profits. And gold goes up in rising uncertainty periods.
But is all uncertainty the same? Of course not.
As you can tell, this discussion-slash-argument can go on forever. Both sides have great points. But there’s this little thing called the market. And when the bell rings, the market does…
Whatever the heck it wants to.
Explaining why the market did something is definitely Monday Morning Quarterbacking (MMQing for short). That’s the term for explaining why an uncertain event happened after the fact. And especially talking about what people could have done otherwise for a different outcome.
Since there are good stories for either side, MMQing can be done by any computer that can process an if-then statement. If THIS happened, say THIS REASON. If THAT happened, say THAT REASON.
We can program it in advance and we’re good to good. Grab a beer and watch TV!
We are in the market to make money. We can only make money if we take positions, which are uncertain.
In The Gold Enthusiast’s mind, you take positions in front of less-risky events, and pick a stop-loss point to get out if the trade goes against you.
For big-risk events you don’t take a position ahead of the event. You wait until the market picks a direction after the event, and get in then. Yes, you don’t make quite as much money. When you’re right.
The point is you don’t lose when you’re wrong.
Keeping gains bigger than losses is how you make money. And that’s what we’re up to here.
So your friendly neighborhood Gold Enthusiast will let you know which events are which, ahead of time. Like everybody else, he’ll prognosticate what he expects to happen. That’s part of the fun.
Putting money on the table is the serious part. When he’s going in he’ll let you know, along with the reasons why.
And when he prefers to wait until after the event, he’ll let you know that too.
So enjoy your Monday Morning Quarterbacking. But when it comes to real money:
Trade the market you have, as it comes at you. Not the most perfectly constructed English sentence, but awesome money-making truth.
Signed, The Gold Enthusiast
DISCLAIMER: At the time of writing, the author has no position in GLD and is long NUGT. The author has no plans to enter a position in GLD but may day trade NUGT over the next 48 hours.