Let me tell you youngsters about the time back in my day, oh so far back in 2011, which was the last time that Gold had a massive rally.
This was a time before Robinhood and Dave Portnoy. We didn’t have any fancy apps to trade from and commissions sure as hell weren’t free.
Every third prognosticator was calling for another doubling of the shiny metal and how it could save a portfolio from all sorts of macro-ills [I feel like Macro-Ills could be Kanye’s “Just call me Yeezus” 2024 Presidential platform]. At the time, the Fed was experimenting with quantitative easing and Americans were terrified about runaway inflation. So naturally they bid up a piece of metal that relies on the greater fool theory to be worth anything.
Rampant inflation never arrived, the luster wore off, and gold prices came back down to earth.
Fast forward 9 years and here we are again.
The last time I wrote about bubbles was at the beginning of 2018 when bitcoin was going crazy. As a reminder, the general advice I gave was twofold whenever something you own tags the upper three standard deviation 200-day Bollinger Band:
- If it’s an asset class, go ahead and sell enough so you can rebalance your portfolio back to normal weights.
- If it’s a trade, either sell half and move your stop loss up to guarantee a profit or sell all of it and move on to the next opportunity.
As you can see from the chart above, you would have first sold some at ~$135, sold more at ~$142, then again at ~$160, and yet again at ~$184. In either scenario, whether it’s a permanent allocation in your portfolio or an opportunistic trade, you would have made consistent money all the way up.
Would you have maximized your profit if you had YOLO’d instead? No.
But you also wouldn’t end up as one of the fun-loving degenerates on r/WallStreetBets that makes a small fortune and then loses it all.