Macro Tsimmis

intelligently hedged investment

BUY SPDR Gold Shares ETF (GLD) & iShares Silver Trust ETF (SLV)

Posted by intelledgement on Fri, 21 May 10

OK, OK…selling these positions back in February was a mistake. Since 10 February, GLD is up 10% and SLV is up 17%. (And they were up as much as 16% and 30%, respectively.)

We had two concerns about holding the precious metals (PMs) in February. The first was that the ascent of Paul Volcker to prominence in the Obama administration signaled a likely move towards austerity in advance of the Congressional elections, which would be deflationary and strengthen the dollar relative to the PMs (and other commodities). The second was that increased systemic risk stemming from the PIIGS sovereign debt issues would engender a flight to safety whereby US treasuries and the dollar would benefit to the detriment of all other asset classes, including PMs.

Well we weren’t smoking anything potent in February—or if we were, it was so potent that we have blacked out the memory—but imagining the Obama administration would embrace austerity probably is a better indication of fiction-writing ability than macro analysis. It may be that government policy—under both Bush and Obama—in response to our structural debt problems has been to fight fire with gasoline, with easy money and easy credit to encourage more private debt and policy changes such as the health insurance reform legislation that creates additional government obligations. We still think the electorate might be in a mood come November to throw out the rascals who are kicking the can down the road and using smoke and mirrors to try to keep the broken system from collapsing, but the government has made their deal with the establishment devil and evidently the “fix” is in.

Our reading on the flight to safety was better, in that U.S. treasuries have increased in value, the dollar has gotten stronger, and commodities from oil to palladium to basic materials have come down in price…but, unlike 2008-09, not the PMs. So we are taking advantage of this current minor retrace to reestablish our positions there, for all the reasons we cited back in 2007 in our original recs for gold and silver.

Previous GLD- and SLV-related posts:

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