Why I’m selling some gold

By MoneyWeek editor-in-chief Merryn Somerset Webb Dec 15, 2011

Merryn Somerset-Webb

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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.

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.

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.

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Published in Investment strategies | More articles by Merryn Somerset Webb

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  • 1. David

    (15 December 2011, 10:03PM)  Complain about this comment

    Gold does well in both a deflationary environment as well as an inflationary one. If anything if there is going to be debt deflation in the short term, and so the price of gold measured in US dollars will fall, surely that is a good time to accumulate more.

    What do they say? This is the capitulation, shacking out the weak holders:) who then miss the rebound. The shorts must be desperate, and so are liquidating their leveraged positions.

    Merryn, I hope you're not going to suggest people buy US dollars and fall right into the central bankers' trap!

  • 2. David

    (16 December 2011, 09:32AM)  Complain about this comment

    Are you trading by the seat of your pants or are you a cool, calm accumulator of physical (certainly NOT paper ETFs) gold?

    Are you in for the quick buck in this very volatile period (when your losses will probably equal your gains) or do you just accumulate quietly?

    Above all, do you understand the reason for getting into gold in the first place?

    As paper money continues to be debased and the banking system creeks, you need to be safe on outside.

    Why are all the central banks quietly accumualting gold rather than buying McDonalds et al? ;)

  • 3. Ellen

    (16 December 2011, 11:53PM)  Complain about this comment

    Why bother telling your readers if its just a case of you needing to rebalance your portfolio. More than 10% and less than 30% possibly, I suspect.. I like to hear the Moneyweek opinions because I have felt they operate closer to the real world than most of the financial sector . We all change things about but don't need to announce it. Even putting a small amount of investment in a sector or company requires a belief that the fundementals are good. I think gold is good for now - but am mindful there has been gold confiscations in the twentieth century. Out of interest, where has the proceeds of the sale of your gold gone?

  • 4. Segedunum

    (19 December 2011, 05:42PM)  Complain about this comment

    Personally, I wouldn't be selling any gold right now. If anything I'd be buying more, and I'd be buying into silver especially. Silver is so undervalued it's unbelievable.

    As long as you have some cash to live, have a portion of your investments in fundamental stocks (energy etc.) then the rest I'd be in with precious metals. The next year onwards I can't see being terribly pleasant and with the bogus price manipulation of gold and silver by ETFs and paper metals the whole thing is only going to be like a coiled spring.

    I hope you don't use ETFs by the way.............. ;-)

  • 5. Segedunum

    (19 December 2011, 05:48PM)  Complain about this comment

    @3 Ellen:

    Just to be clear, there never has been any gold confiscations. Anyone who tells you that there has is probably a dealer trying to sell you something.

    What happened in the US in the 30s was that there was a public offer to buy gold in exchange for fiat dollars. Most people went in with it and lost out. Those that didn't and kept their mouths shut sat pretty as the price of gold went up.

    I bought more gold not too long ago at $1700 but I'm not beating myself up about it. There is a reason I want to hold it and what's happening right now is just short-term noise.

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