Tuesday 18 October 2011

Breaking the rules

Silver's roller coaster ride
The Dow is dancing at the top of its channel. Down this morning up this afternoon. Logic dictates that I should take advantage and buy more short positions. Fear dictates that I should not. Time will tell whether fear or logic will win.

I have a rule that I should not hold more than 10% of my portfolio in any one type of asset. I am currently breaking that rule by holding 33% of my assets in gold and silver the result is that I have to watch my total portfolio rise and fall dramatically as the precious metals get buffeted about by relatively small percentage moves.  Worse is the risk that I am wrong about the eventual direction of gold and silver prices. At present I can bear the pain because I bought my holdings close to the recent lows. But how would I cope if it turned out that the recent lows were simply stops on the way to a further fall, instead of a springboard back to recent highs. There is no question that I am playing a dangerous game. Just look at the drama that has played out in the silver market (today's chart) since February, just eight months ago.

The current breakdown of my holdings is: precious metals 33%, other commodities 5%, equity 4%, index shorts 9% cash 49%.  

No comments: