Chicken Little Buys Gold to Cover Short Position

Chicken Little's definition of an optimist? Someone who thinks we will have an inflationary depression. 

The Chicken Little investment approach is to have a macroeconomic opinion and to invest consistent with that macro view and momentum (click for a longer explanation of Chicken Little's investment approach). Momentum is the idea that assets prices that are in motion, tend to stay in motion. 

Newton's First Law Applies to Markets

My macroeconomic view is that a global depression is approaching, and that the coming depression will be deflationary. In this gloomy world, people sell everything to get cash. That means declining prices for stocks, art, oil, and (possibly) gold. 

With a view of deflationary depression looming, I look to short asset markets. However, I only short markets that are already going down. Way back in 2011, gold began a substantial decline, and I have been short gold for years. 

Last week I covered my short position in gold. Why? I still believe in a deflationary depression, but, at least for now, gold prices look to have stopped going down. 

Gold Prices (GLD ETF)

What is Chicken Little's next move in gold investing? If I become optimistic that the depression will be inflationary, then I will consider buying gold. Conversely, if the current up trend in gold prices ends, I will consider shorting gold again. 

Psychology is at least as important as economics to investing success. Accordingly, I plan to have no position in gold for a least a few months. For years, I have cheered every drop in gold prices as my short positions went up in value. It will take a while to untrain my brain from loving gold price declines. 

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