Lesson of the Year #7 - Silver and Gold: Nice Gifts / Tough Investments

by Jay Pestrichelli on December 29th, 2011

Silver and Gold are always welcome gifts this time of year, but in the 2011 holiday season, they turned out to be disappointing for investors.

The past month has seen a decline in Gold from $1760 to $1530 an ounce and Silver go from $33 to $26.

While the overall trend for the past 3 years is on an upward trend, these metals have lost their luster at some point this year. Silver topped out in April and Gold in September. Two popular ETFs that represent metals are GLD and SLV. Below are their charts for the year.
These investments are not for the faint of heart and I can’t stress enough the value of hedging these plays. As a Buy and Hedge investor, these will seem tempting as you exercise your Inner Guru. And why not…as long as you remember rule #1: Hedge Every Investment, you can take a shot to catch one of these just right.

The question that comes to mind is if now is the time to act? If there was ever a case for not timing the market, these are the symbols that prove it. Investors get it wrong all the time. Even the big brains you see on TV have to come on and own up to their wrong calls from time to time on these metals.

The volatility on both of these metals is on the rise, so instead of outright ownership or a deep ITM call, go ahead and try a spread trade. There are many ways to construct a bullish or bearish position with little time expense, meaning the hedging is cheap.

Here’s the takeaway-Think long-term, hedge it, try a spread, and don’t try to time it.

Happy Hedging!


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