All that Glitters is not….etc..

Inside Ft. Knox — Aliens or Gold?

I went to my 5th wedding this year. I have 2 more to go, as well as 1 more bachelor party…that is unless another friend of mine decides to get married this year. That’s a lot of weddings.

According to WeddingWire.com (ugh), wedding season typically is April-Oct in the US. Within this time period is the Indian wedding season, from Aug-Oct. If you haven’t been to an Indian wedding, go. It’s insane. My sister’s wedding was last year, and after the 5-day event was over I spent an entire day sitting on the couch in a daze as my body re-adjusted out of military-grade tension. But the amount of fun is undeniable. Indian weddings are 3–5 day event full of food/drink/dancing/jewelry. Lots and lots of jewelry. Gold has often taken a jump due to this technical, since everyone is buying tons of necklaces, rings, etc all at once.

This year, it’s been a decent:

I use GDX here, because it’s what I trade

GDX is +35% since Apr 1. Obviously, it’s not all because of wedding season — there’s a dovish Fed, concerns about global monetary easing, as well as overall risk-hedging ahead of an election. But the last few weeks have been pretty pug-fugly for GDX; with improving employment data, a strong USD the last 2 weeks, and a Fed ready to hike (read the Jackson Hole statement), the thing has retraced about half the gains.

Obviously, this has caused some pain for me. I managed some of it selling high (down 60% on the position, I think mostly exited $28+) and I’ve reduced my SLV long as well (down ~$1.5 net on my current piece, which is 33% of what I had). But now I’m questioning what to do with the remaining pieces.

On the one hand, the thing has gassed. YTD, I’ve made money being long gold. Globally, we’re still getting a massive injection of stimulus, and with the BOE and BOC potentially turning their monetary aircraft carrier around and becoming more expansionary. One could argue, even Fed hawkishness might translate to increased urgency from foreign central banks, to help offset growth concerns from a Fed hike.

On the other hand, if NFP is super solid Friday the Fed is looking at great employment reports and overall data, decent asset price inflation, no real macroeconomic concerns, and Brexit far in the rear view mirror. There really is no reason to not hike after that.

Except one:

Oh dear God

Since 1990, the Fed has hiked rates once prior to an election (2004). Prior to 1990, it was harder to tell because they did not publicly target the Fed Funds rate, but they likely raised 3x — 1980, 1972, 1964. So basically, the Fed can raise before an election, though it’s on balance unlikely.

OK that was a supremely unhelpful paragraph. I’m sitting here thinking about what the heck to write about gold, in an effort to help myself make a decision. Let’s look at performance: MTD, I am +.41%. Real Talk: it felt awful this month, even though SPY was just +.21%. Pretty much every trade has tested my patience at some point.

So with August mercifully coming to a close, I want to rebalance or reaffirm my Gold view. Overall, the position comes in tandem with my core long USD position. I owned USDCAD to express this, and kept buying sub-1.30. I’m out of all but the last chunk, as I’ve wanted to keep nimble. So I’m sitting with a reduced GDX/SLV and reduced USDCAD. I am small.

Getting small is the first step to managing uncertainty, at least before you get certain again. Going into Fed, I’m confident of being long USD, and being long GDX/SLV. I think Metals continue their uptrend because, broadly, US rates are still very low and globally rates remain extremely low. But if I want to “hedge” out the US Fed hiking, I must own USD.

SO what does this mean? It feels like I remain small into NFP; payrolls are a crapshoot, and even if you get the data right the market has been in F-U mode so it might not even matter. I think I’ll stick to core equity longs (FB, TWTR, ONDK), and take a breather on macro ahead of NFP. Post-NFP: Watch the market, and accumulate on ideas. This means, BUY UP USD, BUY BACK GOLD. I might start buying the Gold soon, since it’s down, but it’ll be small until after NFP.


Current Portfolio View & Holding. YTD +10.2%: 
Bullish Risk, Bullish Strong Tech, Bearish CAD, Short-term Neutral / Long-term Bullish Metals

Single-Stock:
FB (long spot) vs partial-short 1week 127 calls.
ONDK (long spot)
TWTR (long spot)

Currencies:
USDCAD (long spot, bearish CAD) — reduced

Commodities:
Gold (long spot via GDX) — reduced
Silver (long spot via SLV) — reduced

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