How to Protect Yourself If Gold ETFs Are In a Bubble

February 23rd at 11:00am by Tom Lydon

Gold ETFAre gold exchange traded funds (ETFs) entering a bubble? More and more people seem to think so.

Last week, we noted a story that contained 12 reasons to short gold. Barron’s raises the question, too, now that gold is priced above $1,000 an ounce. The price is equivalent to more than 25 barrels of oil, a ratio that has rarely been exceeded in the last 35 years, says Michael Santoli for Barron’s.

There are two sides to the argument:

  • Owning gold seems logical now, given that the turmoil has gone completely global. Gold has also been rising, even as the U.S. dollar is gaining strength, too.
  • On the other hand, SPDR Gold Shares (GLD) is now routinely turning over $2 billion worth of trading each day, which might give investors pause. Is it becoming a herd mentality?

Meanwhile, Brett Arends for The Wall Street Journal gives the ins and outs of gold investing, including that gold is volatile and no one knows its true worth. For that reason, the mania is to be taken with a pinch of salt, he says.

While gold can be a volatile metal, right now, the trend is there. You can’t fight it. But if you’re in gold, have an exit strategy at the ready (we get out either 8% off the recent high or when it falls below the 200-day moving average). This will help protect investors from further losses, and may even preserve some gains that might have been made.

For full disclosure, some of Tom Lydon’s clients own shares of GLD.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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