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SO WHAT ’S THE DEAL WITH GOLD PRICES ?

Gold has long been sought as a protector of capital and continues to be the subject of many a water cooler conversation. Gold bugs, and those that like to philosophize as to why what is happening in the macroeconomic environment is illogical, often use gold as a reference point to explain what they believe ought to happen. Whether it’s the future of the U.S. dollar, the world economy, or Central Bank actions, many a theory has been proposed which often leads to gold being viewed as the one sure safe haven. I have heard and read many sensible and truly

logical reasons by some very smart individuals as to why gold should continue to climb in price. “Gold is in short supply.” “You can’t manufacture gold.” “Gold has enduring value.” “Gold is a hedge against inflation.” I have also heard very logical reasons why the U.S. dollar should collapse. “The debt level is unsustainable.” “The Central Bank (the “Fed”) can’t just keep printing money.” “Printing money and other “Quantitative Easing” measures will lead to hyper-inflation.” These and other similar comments make the rounds and permeate many an investor’s psychology. So when, in the middle of April, gold had its worst two-day performance since 1980, dropping 13% in value below $US1,400 per ounce, a far cry from the peak of $1,900+, which it hit in August of 2011, many investors were caught off guard. “Say it ain’t so” became the prevailing mantra, along with cries of foul play, as conspiracy theorists proclaim that gold prices are being manipulated by Central Banks, hedge funds, and other “rogue” entities.

An i-Pad is now more expensive than a share in Appl e for the first time in a year. Last fall, as Apple’s stock hit a high of over $700, it was crowned as the “world’s largest company” based on its market capitalization at the time. Such labels seem to be the kiss of death, as the “world’s largest” title never seems to be held for very long. In April, Apple’s share price fell below $400 with its first quarterly decline in profits in over a decade. This is despite the over $120 billion in cash in Apple’s bank account! So what do the price of gold and Apple’s share price have in common? The answer is far simpler than you might think. Both of them experienced incredibly long periods of gains without much of a drop, resulting in fabulous returns for those that got in early. However, both also signalled their demise, as their respective long-term trends were broken, and the one rule I have learned never to ignore is, “the trend is your friend.” While the trend is up, the volume is supportive of more buying than selling, and the “story” remains intact – hold on and enjoy the ride. BUT, and this is a big “but”, when the trend turns down, in particular when the rise in any investment has been dramatic – I have one thing to say, “watch out below!” You can give me 1000 theories as to why gold or Apple should be trading higher but prices don’t lie. Be forewarned also, that “averaging down” on a sinking investment is often compared to catching falling knives – it can be a very painful experience!

Bottom line – where an investment in a downward trend ends up cannot be known until after it has bottomed. A safer approach is to stick with what’s working - until it’s not; to do otherwise is too risky and too often ends in misery.

Asset Class YTD 1 Year 3 Years Asset Class YTD 1 Year 3 Years S&P/TSX 60 (Canada) 0.6% 4.8% 2.6% US$/CDN$ (1.0159) 1.5% 2.0% -0.3% S&P 500 (US) 14.4% 19.3% 12.4% 10-year U.S. T-Bond 2.9% 6.0% 8.0% MSCI Europe 7.3% 16.5% 3.5% 10-year GOC Bond 2.6% 6.8% 9.2% MSCI Emerging Mkts 0.0% 3.4% 0.3% 5-year GOC Bond 1.6% 3.8% 5.5% MSCI World 11.9% 16.4% 6.8% 3-Month CDN T-Bill 0.3% 1.0% 0.9%

GLOBAL BENCHMARKS – To April 30, 201 3 (Canadian $ Returns) – sourced from TD PAIR 5.1% 30.0% 0.5%

MARKET COMMENTARY: An exclusive newsletter from Mark J. Krygier, LL.B., CFP, Vice President & Portfolio Manager

May 2013 Volume 14, Issue 4

Mark J. Krygier, Portfolio Manager: T : 416-512-6441 E : mark.krygier@td.com Avital Pearlston, Associate Investment Advisor: T : 416-512-6674 E: avital.pearlston@td.com Megan Thomson, Investment Representative: T: 416-512-7360 E: megan.thomson@td.com 4950 Yonge St., 16 th Floor, Toronto, ON M2N 6K1 1-800-382-4964 Private Fa x: 416-512-8248

www.krygierwealthmanagement.com

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