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All That Glitters Is Not Gold

Posted by kdadmin on August 21st, 2015.

All That Glitters Is Not Gold

Yesterday, the major market indexes (SPY) dropped over 2%. That would be a significant portfolio loss if we weren’t already in cash. Of course, the price of gold also shot up yesterday. Right about that same amount, as traders ran from the market to “safety.”

But here’s the rub …

If you look at the chart above, you’ll see that gold isn’t actually very safe. Since we got out of equities (SPY) around May 22, 2015, gold has dropped by nearly 9%, at its lowest point just a few days ago. I don’t call that safe. If you look at the chart below, you’ll see that gold has dropped 11.4% in the last twelve months, even including yesterday’s advances. In fact gold was down nearly 17% very recently.

All that's glitter isn't gold

I explained why the price of gold was fluctuating in my recent post, Dead Gold Bugs, but I want to draw your attention to why I’m not using gold as a safe haven. Notice the blue line. That’s a money market investment (cash), here represented an ETF known as CMR. Now, I ask you, which is safer? The blue line or the orange line? Which investment would you hope that your financial adviser used in times of uncertainty?

I choose cash. I bet you would too.

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