Buy Gold or Sell Gold Now?
Buy Cheap Gold, Sell Expensive Gold- Timing Gold Prices
Bill Miller, Michael Steinhardt, Warren Buffet, and Jesse Livermore all beat the stock market average returns during their investment careers. Steinhardt produced average compounded returns of over 24% while the S&P500 averaged about 8%. This performance alone decapitates the Efficient Market Theory.
Buying Gold, Selling Gold: Good Timing = Good Profits
Efficient Market Theory came from Prof. Fama at the Univ. of Chicago Booth School of Business in the 60’s. This theory lead to the Wall Street mantra of “an investor can’t beat the market, so invest for the long term.” For Wall Street bankers and stock brokers, the money keeps rolling in. For investors, keeping money in a market- even the gold market- without regard to price cycles can lose money in a portfolio.
Buying gold in the form of gold coins, gold bars, bullion gold, or gold ETF’s requires becoming acquainted with some well known market cycles. Unfortunately, most gold buying occurs when the gold price rises dramatically and makes news. Gold selling by the general public often occurs when the gold price drops. Following the herd when buying and selling gold- or any investment- can lead to dramatic losses.
By following gold market timing principles, an investor could have sold gold investments in 2008 near the peak of $1000. After gold prices dropped to the $800 level, a fast acting technical trader could have bought back in and enjoyed a more than 20% return on investment year over year. That is the essence of buying gold and selling gold for profit.
When to Buy Gold and When to Sell Gold
A number of factors affect the price of gold.
- The rise and fall of the U.S. dollar as reflected in the USDX.
- Seasonal trends in gold coins, gold bars, gold bullion, and gold jewelry buying.
- Political changes including economic summits, reports, potential conflicts.
- Supply and demand fundamentals with mining production and investor purchases.
- Gold coin and gold bullion marketing to investors.
While these 5 factors interplay between each other, they have distinct effects.
Factor number 5 was demonstrated when famous silver analyst Ted Butler’s friend I. Friedman wrote an article recommending purchase of U.S. Silver Eagles. Almost immediately, the U.S. Silver Eagle program experienced record demand for silver coins. Gold coin marketing has had a similar effect. Even the Chinese government has recommended gold coin and silver coin purchases.
Factor 4 generally drives long term price fluctuations though it can quickly change markets if a country or mine shuts down production. Great surges in demand can also cause gold coin prices to rocket higher. Recall the effect Ford Motor had on the palladium market when it sent the metal from $60 to $1100 by stockpiling because it feared a shortage. The same dramatic rise can occur with the tiny gold market.
Factors 1, 2, and 3 push gold prices on a day to day basis more predictably than either 4 or 5. Understanding how the USDX trends, seasonal effects, and political changes move the gold price puts the trading odds in a gold investors favor. Another article will explore these factors in enough detail for a gold investor to apply them in making potentially profitable trades.
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