Author: Tom Yorke, Oceanic Capital
Covestor models: Global Diversified Conservative, Global Diversified Moderate, Global Diversified Aggressive
We had the opportunity to ask Tom about the recent fall in the Gold price, which impacts his three Covestor portfolios, all of which hold the Gold ETF (NYSE: GLD) as of 9/26.
Basically, I see Gold as the ultimate in “true” currency. It has performed, until the last several days, like it should, rising against a backdrop of chaos in other markets. Unfortunately, when things get very messy and volatility levels spike, many correlations among asset classes with previously low correlations go instantaneously to 1 to 1.
The free fall in Gold like this has been virtually non existent over the last five years. This is I believe the result of several very large hedge funds getting “offsides”, and their forced selling due to excessively leverged positions (for example, George Soros’ liquidation of his position). This is a “takes no prisoners” situation where even the good girls and the piano player goes to jail. During these times, anyone who has a margin call has no choice but to sell whatever assets they can find a bid for, even if its the best positions they own. The gold market is held very deeply – we saw in 2008 gold selling off when things hit the panic stage, for these same reasons.
After today (9/26), I expect things to settle down and stabilize a bit before heading north again. The core forces that were at work for the last 12 months haven’t changed and should reassert themselves once these big hedge funds have been blown out of this market.
