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Exit Strategy
November 26, 2004

I have been thinking about how simple, but difficult, investing is. Figuring out the relationship between gold and the dollar was not difficult. Understanding that the ballooning trade deficit would eventually cause the dollar to fall was also easy. The difficult part is acting on your beliefs when no one else agrees with you.

Everyone knows the recipe for investing success: buy low and sell high. But it means that you have to buy when almost everyone else is selling, or “helpfully” telling you that you should really be buying something else.

The opposite is true when you need to sell: prices will be rising and more and more people will see the light and pour their capital into the sector. At some point prices will be outright expensive and the general sense would be that whatever is driving the boom will continue to do so.

We could still be several years away from the top in the gold price, or the bottom in the dollar, but it’s worthwhile to think about your exit strategy now. How will you know when to sell? There are several different strategies successful speculators use to take money off the table; it’s not all that important which strategy you adopt as long as you have one.

Since the US presidential election -- three weeks ago -- the dollar has dropped 3.45% against an index of the G10 nations’ currencies and gold is up almost six percent. Even Alan Greenspan is now saying that either the US dollar or the trade deficit has to decline. Both cannot continue rising. I expect both to decline. Devaluing the dollar is the market’s way of correcting the trade deficit.

The trade deficit is a virtual guarantee that the dollar will fall just like the budget deficit will cause interest rates to rise. The combination of a falling dollar and rising interest rates is going to hurt US consumers and US corporations. It also means that the price of gold is heading much higher, in US dollars.

The latter is why I invested in US-based gold exploration companies. It’s the best leverage to the declining dollar that I can think of. If you have a better way to play the falling dollar, let me know.

Paul van Eeden


Paul van Eeden works primarily to find investments for his own portfolio and shares his investment ideas with subscribers to his weekly investment publication. For more information please visit his website (www.paulvaneeden.com) or contact his publisher at (800) 528-0559 or (602) 252-4477.

Disclaimer

This letter/article is not intended to meet your specific individual investment needs and it is not tailored to your personal financial situation. Nothing contained herein constitutes, is intended, or deemed to be -- either implied or otherwise -- investment advice. This letter/article reflects the personal views and opinions of Paul van Eeden and that is all it purports to be. While the information herein is believed to be accurate and reliable it is not guaranteed or implied to be so. The information herein may not be complete or correct; it is provided in good faith but without any legal responsibility or obligation to provide future updates. Neither Paul van Eeden, nor anyone else, accepts any responsibility, or assumes any liability, whatsoever, for any direct, indirect or consequential loss arising from the use of the information in this letter/article. The information contained herein is subject to change without notice, may become outdated and will not be updated. Paul van Eeden, entities that he controls, family, friends, employees, associates, and others may have positions in securities mentioned, or discussed, in this letter/article. While every attempt is made to avoid conflicts of interest, such conflicts do arise from time to time. Whenever a conflict of interest arises, every attempt is made to resolve such conflict in the best possible interest of all parties, but you should not assume that your interest would be placed ahead of anyone else’s interest in the event of a conflict of interest. No part of this letter/article may be reproduced, copied, emailed, faxed, or distributed (in any form) without the express written permission of Paul van Eeden. Everything contained herein is subject to international copyright protection.


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