Don’t Buy Gold

Is your desire to buy gold now based on reasonable analysis of market conditions? Or is it simply an emotional reaction to the selloff?

“Short-term I can understand your premise on gold,” writes a somewhat reasonable reader.

“Markets are doing well so people head in that direction. But for the long-term, I’m a buyer. I think there’s a lot of inflation coming. So I’ll slowly buy in expecting lower priced and will be excited when they fall. But later I’ll expect higher prices and will be excited as they rise… sort of.”

I can’t make this any clearer: You shouldn’t even consider trying to buy gold right now.

After all, you are a long-term investor, correct? Give gold a chance to consolidate or move lower. When was the last time you saw any asset class permanently recovered from a violent drop the very next day? It just doesn’t work that way…

There will be snapback rallies and more downside. Expect to wait a long, long time before a suitable base forms.

Also, think about what you just wrote: Markets are doing well so people head in that direction…

Apply this line of thinking to gold. The gold market was booming. So naturally, people headed in its direction. Investors, traders, hedge funds and your crazy coworker bought gold. People wanted to own it because of its performance. Now they are leaving. And they won’t be rushing back to buy anytime soon.

Look, I know there’s a ton of shouting going on out there about where gold might end up.

Every blogger and financial journalist with 15 free minutes and a WordPress account is publishing their own takedown of gold after its big drop.

But where were these guys last month? Where were they when gold began telegraphing trouble in February after it broke below $1,650? If had to guess, I would say they simply weren’t paying attention. It’s so easy to pile on after the fact…

The loudest howls (by far) are coming from those defending gold. They pound the table about multinational conspiracies, computer trading, and the unwashed masses selling gold for all of the wrong reasons. They’ve even blamed the charts that they loved so much over the past 10 years!

Where were these arguments when gold was soaring higher every month? Why has the narrative suddenly changed?

Any way you twist it, powerful emotional forces are at work. Denial is in control right now. Acceptance is a long way off…

If you are well versed in trading, you could try to play a snapback move in gold futures or miners.

If that’s your game, keep tight stops and expect the unexpected. This thing is just getting started…

I repeat — don’t jump back into gold. It’s too soon.

I'll buy. Cost averaging. You buy when it goes lower, to cost average what you bought at a higher price. Buy on the dips. When it turns around (eventually) and the price goes higher, you sell some at a price that is higher than your cost average figure. Those profits negate the higher priced gold you previously bought. Buy low, sell high. Others buying on emotion buy when the prices are skyrocketing and lose on the burst of a bubble. Right now, gold is going down, might even go below $1200. But it still makes sense to buy as it goes low, to cost average your assets.

Being an avid equities investor I’d have to agree. Especially wrt silver. I’d expect the slide to continue. And I expect the market to correct significantly, as well. Its what the charts suggest. You don’t get these massive sell-offs “out of the blue”. Something is up, we just don’t know what it is yet. Another shoe is likely to drop, based on my personal analysis.

I could be wrong. Most of my trading is on a macro level, eg. individual stocks. But if/when I see an invidual stock take a hit like the markets (and commodities) have, I would be selling it, not buying it, or waiting for a confirmed bottom (e.g. as base to form, and trendlines to confirm - currently we’ve breached most moving averages and the trendlines are not favorable).

Good luck.

Yes that is true. They attacked it when it was up, too. Talking heads on financial networks and even the Oracle of Omaha all attacked Gold in an almost surreal coordinated way. It is like denying human history, 1000’s of years of economics. “forget gold, we are more evolved now, trust the fiat paper, invented in 1913 and refined in 1972 when we left the gold standard”. Sorry, but 40 years experience is not enough time to declare 4000 years antiquainted. They don’t want us in PMs and especially not physical gold, maybe in part because they can’t deliver on growing demand for physical PMs. And because gold is associated with certain Libertarian types, and anti-Fed types, and the zombie-apocalypse crowd they ridicule it as a political weapon too. But Ron Paul was right when he said he could buy a gallon of gas for dime when you calculated its cost in gold. He is right that the Fed makes bubbles and pops bubbles influences where private money gets invested.

The thing is at this point you can’t really be sure whether the bubble in PMs was designed by the same Fed that bubbled back the stock market and continues to work on housing/RE. And you can’t be sure they aren’t on the opposite side either. Gold spiked from 2010 to 2012 about $800, with Silver in tow. If you look at multi-year chart you can see clearly how money just plowed right into it. If you remember the tech bubble from 1999-2000 it looks similarly spiked. Straight up. Almost like a short squeeze. And now maybe the beginnings of straight back down. With $85B a month to throw around any single market can be moved in a big way. With Japan throwing other massive amounts you’d expect everything to bubble higher but instead we are probably going to see a big correction. Something specific is happening I suspect, I just can’t guess at what. It could just be that they can’t paper over the worldwide economic malaise any further and the big money realizes it. But that’s too generic to feel right to me.

At the end of all hyperinflated markets comes massive deflation. That is how the cycles work. While we do not fit the traditional “hyperinflation” such as seen in Weimar Germany or Zimbabwe, this recovery from the depths if 2008 happened very fast and with a less solid foundation. It just bubbled due to QE. Fact is we may be in a liquidity trap. All this money being printed and still nothing happening in the economy except asseet bubbles. People who could borrow don’t want to or need to, and people who do want to or need to borrow are unable to. Jobs are not there, especially not $30/hour jobs, no matter how much money is being thrown around. There is essentially nil economic growth, just bubbles. All that money in stimulus and in deficit spending... and it hasn’t worked. So now what do we do?

I am not anti-PM. I just am opinionated, I think all markets are going a good bit lower still. I hope I’m wrong I don’t want to see more wealth wiped out. I would like to be a buyer of PMs and may nibble, but looking for another 10% first. I could be wrong, in fact I want to be wrong. Best wishes and good luck to you.

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