I am selling some of my gold. Regular readers will know that I've held gold in one way or another since 2001 when it first became obvious that money was too cheap and that the markets were becoming grotesquely distorted as a result.
I kept holding it all the way through the subsequent building of the credit bubble, the crash in 2008, and through the beginning of the long deleveraging period since then. I'm still holding every bit I have ever bought. So why sell some now?
Several reasons. First, it now makes up too much of my portfolio: it started as a small percentage, but its huge price rise over the last decade means that my financial future is now almost entirely dependent on the price of gold. That makes me nervous so I have to cut my holding.
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Second, it isn't obviously cheap any more. Back in 2001, gold was cheap relative to everything from the price of oil to the price of extracting the stuff. There didn't appear to be much downside in it, so it made sense to hold it as a speculative investment. That's not the case anymore and that means there is more risk in holding it than there was. It's also getting too popular I am asked on the radio and TV to make the case for gold far, far too often for any of our comfort.
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And finally there is the fact that we are moving into a nastily deflationary part of this crisis one in which the main game in town is recession and deleveraging. At the same time, loud voices are beginning to be heard making the case against quantitative easing (QE money printing) in America and in Europe. That's not going to make for as good an environment for gold in the near future as we have had in the near past. So, for a combination of all those reasons, I'm selling some of my holdings.
However, just to be clear, I'm absolutely not selling all of my gold. It might no longer be a good speculative investment, but for now we live in very abnormal times and it remains the best portfolio insurance there is. I'm selling enough of my gold to prevent its collapse from ruining my asset base, but keeping enough so that the possible collapse of paper money won't ruin it either.
We know there is no way that austerity can really work in America, Britain or Europe and we know that means that, in the end, most debt will end up being monetised. That means that you can be all but certain that the end game to this crisis will be very high inflation as trust in paper money ebbs further and further away.
I'm not sure when that will be but I'll be holding some gold until it happens.
