A GOLD & SILVER MELTDOWN

So you thought the selling in stocks was heavy? Take a peek at the recent performance of both the silver and the gold Exchange Traded Funds (ETFs).

The iShares Silver Trust (SLV) was down nearly 12% in yesterday’s trading session alone. Over the past four weeks SLV is down nearly 30%. Not a good month for those who are long silver.

There wasn’t much relief if you opted for gold either. The streetTRACKS Gold Shares (GLD) sank nearly 7% in yesterday’s trade, and over the past four weeks the shares are off 18.5%. That is what I call an investment that’s lost its shine.

In fact, the dramatic plunge in gold is best illustrated by the chart below. The thick black line represents the price of GLD when plotted since the beginning of the year.

As you can see, GLD has come way down from its May high. The fund is now in danger of dropping into the negative column for the year.

It’s been my experience with investors in gold and silver that they tend to be very emotional about their holdings. If someone is investing in gold with the conviction that it will be heading to $1,000 an ounce by the end of the year, it is really tough to convince them otherwise even in the face of reality.

It’s like that with silver investors too. For reasons that have to do with philosophical underpinnings and the accepting of certain market principles, it is tough to dislodge the entrenched thinking that permeates the decisions of many precious metals investors.

I think this kind of entrenched attitude about a particular investment is a really bad way to run a portfolio. I can remember vividly several decades ago when people lined up to buy gold coins at $800 an ounce. That was right about the time that a 25-year bear market in gold began.

The point here is that you should never be too rigid in your thinking concerning a particular investment. If you are wrong about something, there’s no shame in admitting your mistake and moving on. In fact, the quicker you move on when times are rough, the better off you’ll be.

Remember that recovering from one or two small losses is easy. Recovering from a really big loss is almost impossible.