At what level should people cash out of gold?

[ninakat]

I'm sure this is a major question on the minds of anyone who has invested in PMs. I bring it up today because Jim Sinclair threw in his advice at the bottom of a longer piece today:

I will advise taking the cost of your position out between gold at $1580 and $1620, letting the balance of your position ride as the price shows its intention of reaching Alf and Martin’s numbers. http://jsmineset.com/2009/12/06/jims-mailbox-294/

So he's saying that if you spent $10,200 on gold at $600 an ounce, and you therefore have 17 1-ounce gold coins, you should sell 6 coins when the price of gold is about $1600 an ounce. (6 x $1600 = $9600) At that point, you've recouped your original investment, and the remaining 9 coins should simply be held. Of course, the next question is when to sell those? Short answer: only when you need the money for necessities.

Your thoughts?

[shankland_the_dog]

I've been dealing in coins and bullion for over 20+ years.

I typically cash out a small chunk when prices get high to recoup what I paid into it in the first place.

Once you have recouped losses the rest is "free". You can ride up and down the wave of the PM market all you want after that since you have really lost nothing.

Trick is to have no regrets. Don't get angry at yourself or others when the price goes up a little higher, simply put it could have gone the other way and you would have lost.

Just about all my stock is now "free". That means at some point I made my money back and more. So I don't really care about about day to day flucuations as others do.

The trend is up, and has been for years. PMs market is not for day traders.

[Macs UK]

Well, I'm sure Sinclair is a much more sophisticated investor than me (and I don't regard PM purchases as investments, but as insurance...) but has he factored in that he (or the hypothetical guy?) spent $10.2k of 2007 dollars, to recoup $9.6k of (say) 2010 dollars. I submit the 2010 dollars aren't worth much against the 2007 dollars. And if it is going stratospheric, what's the long-term loss of reducing your holding by a third?

But I guess it depends on what you see in the future - his strategy would seem more sensible in a generally BAU situation with booms and busts and cyclical markets, but not necessarily for a 'big disconnect' where the only likely carry-through value will be PMs and other tangible assets/preps.

As an 'insurance' buyer, I go straight to your second position - sell it when it's needed, not before.

My 2c-worth  

[Arraya]

I cashed out on a some last week.  If you average what I paid for the remainder it's about $80 per ounce.  If it it skyrockets up again, I'll be a little irritated but not to crushed.  If it dips to a point where I feel comfortable, I'll pick up some more.  Either way, I am happy with my virtually free gold.

[NYALB]

I think waiting until the Dow/Gild ratio is at least 2:1 is a good idea.

[BJ]

Thanks for raising the question Nina, it's something I've been wondering about also.  Although I'm holding more silver than gold and have equally vague notion of how long to hold that.  The 2:1 ratio to the Dow index seems a good working theory here and it's something I've also seen in one of Bill Bonners comments.

[metaforge]

I suppose you'd need to figure what the dollar's worth when you buy, and then compare with what it's worth when you think about selling to also figure it out.  If you bought in at $1000 and get out at $1500, doesn't mean you made jack squat if the dollar has gone down by 1/3 in the mean time.

Personally, I think if you already have done your proper preps, meaning: cash in the mattress, food in the pantry, shooters for defense, and PMs, then why ever sell PMs unless and until you need to?  Unless you bought to originally try for capital appreciation, seems silly.  We all know the USD is going nowhere but down ultimately.

Modify to also add that if you think you find another investment that's going to perform better than PMs, I guess that's another valid reason to cash out all or part.  In the doomer view, maybe a doomstead would be worthy.  Can't imagine cashing out PMs to buy stocks at this point, except maybe dividend paying energy stocks if you think there's a few years of BAU yet to go.

[Krazy Kat]

I guess it's obvious that if anyone KNEW the answer they would have a free pass to a fortune. So all we have is our opinions (hopefully informed). Anyway, here's mine:

Two events in the last eleven days seriously knocked back the price of gold and stopped the gold bull run in its tracks, at least temporarily. The first was the announcement of the Dubai "default". The second was Friday's announcement of the positive nonfarm jobs report.

The first event signaled to me that if there is deflationary collapse (cascading defaults, etc), money may not rush into PM, but more likely Treasuries, like last year, resulting in revived dollar strength. I personally feel that the likelihood of a collapse remains extremely high.

The second event signals that if the US economy revives, there will obviously be no need to seek safe haven in either PMs or cash (Treasuries). Altho I don't discount entirely the chances of this happening, the collapse scenario seems more likely.

Short answer: At the first signs of a systemic or sustained collapse, I would look to sell off major positions in PM, take profit, and wait for the crash to happen, buy at the bottom, and let the inevitable hyperinflation take you to the moon with PMs.

For long term investors in safe haven gold, forget medium term fluctuations in PM price, and BUY AND HOLD.

[paland]

I'm just speculating here but:

If the Dubai spectacle is in the trillions as reported here, and if Europe is the largest investor in Dubai, and they take the biggest hit, then the dollar index will rise again since the majority of its index is against the Euro.  And if this is the case, that the dollar starts to rise again, then silver and gold (vs dollar) will drop once again.

At least for the short term.

Edit:  OK, so this is similar to what hard rain just posted, but I swear that I wrote this before I read hard rain's post.

[Krazy Kat]

paland, it's ok if you SWEAR that you didn't copy from me 

By the way, I agree that central bank buying (China, India, Russia, etc) may very well support PM at a higher price, even with a dip....

[jh355]

The question that needs to be answered is; did you purchase them for an Investment, or for Insurance?

Investments you would typically sell at 8 to 10 % over purchase price, the premium on PMs typically run 6 to 10% over spot, so if you’re dealing in the physical market, you hold longer (although that’s a lot of work to “avoid” the tax man).  For paper trading, 8-10% works, or put in a trailing stop % or $ over your sell target.  Buy on similar dips.  The PM market is manipulated, so depending on where you enter, it could be a long time (think 1983 to 2008) to recover from a bad decision. Not something for the inexperienced.

Insurance you buy it when you see a catastrophic event on the horizon, and sell when the storm has passed.  In physical PMs, confiscation and theft are your two downside risks.  If you move your PMs out of the country in question, you avoid problem #1, and can make big money after “the” event, by, repatriating your money.  If you’ve bought physical PMs, for insurance, and are jumping in and out just one step ahead of capitulations, you risk missing the big Magnum Opus, in which case the small amount of FRNs (a promise to pay you nothing) you’ve made will be worthless.

Your mileage may vary

[dermot]

Automatic Earth: Do NOT buy gold now:

http://theautomaticearth.blogspot.com/2009/12/december-5-2009-golden-double-edged.html

cliff notes: this bull market is heading for a fall.



NOTE: I'm LOOOOOONNNNNGGGG on gold....but I wouldn't advise anyone to buy now.

[exocet5]

Could be.

The floor is $1045 or what India's Central Bank paid per oz. At $1 dollar below this, China snaps up whatever they can buy.

[exocet5]

Well, I'm sure Sinclair is a much more sophisticated investor than me (and I don't regard PM purchases as investments, but as insurance...) but has he factored in that he (or the hypothetical guy?) spent $10.2k of 2007 dollars, to recoup $9.6k of (say) 2010 dollars. I submit the 2010 dollars aren't worth much against the 2007 dollars. And if it is going stratospheric, what's the long-term loss of reducing your holding by a third?

But I guess it depends on what you see in the future - his strategy would seem more sensible in a generally BAU situation with booms and busts and cyclical markets, but not necessarily for a 'big disconnect' where the only likely carry-through value will be PMs and other tangible assets/preps.

As an 'insurance' buyer, I go straight to your second position - sell it when it's needed, not before.

My 2c-worth  

You bring up some good points Macs UK. My gut tells me Sinclair aimed this statement more towards folks who have been reading and investing on his advice for years (read: bought gold @ $300-500). Up until recently (say 2007-ish), they've represented the bulk of his readership methinks.

For those who've gotten in more recently, the idea has bounced around in my head about selling at 80% of Alf's Major Five wave with the expectation that sometime during of Major Five there would be .gov intervention into the sale and/or possession of the aforementioned product. Of course you'd want to plow those PM's right into something tangible.

I'm shooting from the hip on this one.

[metaforge]

We already talked about that Double Edge post in another thread - I don't buy their arguments personally.

Interesting point about his audience - if it is really those people who bought in at $300-$500, then telling them to take their cost out at around $1600 really leaves a lot of their PM in play.   ie if I bought 12oz @ $400, then at $1600 I'm going to sell 3oz to get my cost back and the other 9oz are gonna ride.  Still seems pretty bullish.