Gold Remains My Favorite Investment

Some fun facts:
Gold (GLD) is up 18% for 2009.
The S&P 500 is up 17% for 2009.

The S&P 500 has essentially gone nowhere in “real gold” terms. The angriest bears out there might declare that the stock market rally is merely a mirage, the result of the decreasing value of paper currency. I will wait to see what unfolds in the next six months or so before I go that far.

Last year, I said gold would be my favorite place to be in 2009. While I thought it would far out-perform the major stock indices, it remains my favorite investment even as it hits 18-month highs today. In my opinion, the future carries a high risk of inflation. Gold, and other commodities, will provide much better protection against it than stocks (another form of paper currency). Any further bouts of deflationary panic will be opportunities to buy, not sell. (As Bill Fleckenstein is fond of reminding his readers: with a fiat currency, all roads lead to inflation).

Having said all that, with hindsight, I can see that I have been “too cute” with my investments and trading in commodities this year. I sold all my copper about 50% ago. I sold all my silver four weeks ago. Now, I am left with just my gold. I was looking for a relief rally in the U.S. dollar to deliver lower prices in dollar-denominated assets, but it is increasingly looking like that moment may not come anytime soon (more on that later). The main good side in all this is that since I have already sold down so much of my exposure to metals, I have no inclination to sell my gold into these highs…as temptation would typically dictate to me. I will just keep riding this out as far as it goes and take the buying opportunities one dip at a time. (Click here for a technical analysis that suggests a target of $1200-1300 for gold by the end of this year).

Be careful out there!

Full disclosure: long GLD, long SSO puts