Buy Gold Now or Wait? What Will Gold Do Next?
As the price of gold moved to it’s all-time high yesterday, people are wondering if now is the time to finally buy gold. To answer this question, one must understand what phase gold is in. In this article I’ll give my thoughts on what I think will occur next with gold.
The U.S. Dollar Is Key But Other World Currencies Are Influencing the Price of Gold
Imagine you’re in Europe right now and you are seeing your currency, the EURO, depreciate quickly because of the problems with Greece. Add to this the perception other countries in the Eurozone, like Spain and Portugal, are having problems with debt and unemployment. Add to this even more problems with countries like Italy and Ireland and some panic might be setting in with the good citizens of Europe. What are they to do to protect themselves from a falling EURO?
The EURO Currency Free Fall
I first alerted readers to the potential fall in the EURO with an analysis I did in November of 2009.
Realize this….. the European Union is in just as bad of shape as the U.S., adding more debt to their economy and no real GDP growth yet the EURO has been rising against the dollar and is close to its all-time high again.
At that time, the EURO was trading close to $1.50 per U.S. Dollar as seen in the chart below.
What’s Going On With the EURO Right Now?
For clearer image click here.
As you can see in the charts above, the base price for the EURO is around $1.25. This seems to be the floor for now.
Calling Off the EURO/Gold Trade
I’m officially calling off the EURO trade in gold (emphasis on “trade”). As you can see in the chart below, the last 6 months have seen the price of gold traded in EUROs provide a return of just over 30%. Anytime you make 30% in this short of time, it makes sense to lock in profit. Some traders may wish to sell half and let the rest ride while holding a stop. This can work out well too as the situation with other countries in the Eurozone is still as yet, unresolved.
If anyone who is reading this lives in Europe, I recommend holding physical gold. Longer term, the EURO is still in trouble, just as the U.S. Dollar and most every other currency in the world is (for obvious reasons). Gold is insurance for your other assets priced in your currency.
The YEN Trade In Gold Is Still On
The YEN trade in gold is still on. Any dips in the price of the YEN I would be adding to your position. As with any call I make, dollar cost averaging (DCA) into a position is the best way to invest. Along with DCA, taking profit is your only way to make money this day and age, especially with such volatility in the markets.
The U.S. Dollar
Looking at the charts below, you can see the U.S. Dollar is in a cyclical bounce with in a secular trend. The fact the Dollar is moving higher while the U.S. Dollar price of gold has been moving higher is an added bonus to U.S. holders of gold. Thank you Europe!
U.S. DOLLAR 5 MONTH CYCLICAL TREND
U.S. DOLLAR MULTI-YEAR SECULAR TREND
What Will Gold Do Next?
Perception and the Madness of Crowds
It is still the perception, despite the recent turmoil in the world stock markets, that the people in charge of things are in control. Who are these people in charge? The answer is the Federal Reserve and other Central Banks of the world along with the IMF. They were in charge recently by putting almost a Trillion dollars into the Eurozone to help with their financial difficulties.
This analysis goes back to my theory the Fed is Relevant, for now. They have been bailing out anyone and everyone in an attempt at maintaining market stability. In reality, they will just make things worse for all of us in the long run.
So while you see the short term effects of market stimulus from bailouts in the Eurozone and here in the U.S., know that the money used to bailout anything can only come from the taxing of individuals or through inflation.
In fact, many are not believing the short term maneuvers as the following snapshot of gold buying pressure chart shows (gold trading at $1,246.10 as I write).
As the EURO recovers, assuming it does for the time being, people around the world may perceive everything is back to normal. Unfortunately there are consequences to the trillions of dollars being spent to bailout out companies and nations. If you were to think of things differently, try putting on the mindset that answers the question, “How have they done so far?” So far, they keep bailing out everything and people believe this can continue forever. It can’t.
It is unfathomable to me how gullible mainstream America is. Of course I have a theory on that too…. Keep their minds busy and pay no attention to the man behind the curtain. The media is very good at this with pushing one side versus the other. Divide and conquer is their ploy. And this isn’t some sort of conspiracy theory, it’s just me putting the pieces of the puzzle together with the goal of helping you be a better investor. We can win this game if we’re well informed.
So What Phase of the Gold Bull Market Are We Presently In?
This is still the second and longest phase of the gold bull market. I believe there will be one more attempt to buck people off the gold bull, especially should the U.S. Dollar move higher. There are literally billions of dollars the Federal Reserve, in collusion with hedge funds and the wealthy elitist owners of corporations can use to easily influence any market, especially one as small as gold. That’s why the Federal Reserve wants to keep anyone from auditing them on monetary policy.
Gold could easily shoot up $50 from here or fall $50. Holders of physical gold don’t care. Holders of physical gold know gold will be at $2,000 and they will be smiling. If gold fell to $900 from here, they won’t care and if anything, will find a way they can to buy more.
Dollar Cost Averaging into a position is the best way to play any run ups in the gold price like we’ve had. In this sense, you hope the price of gold goes lower so you can buy it for less, knowing full well gold will be much higher in the years to come.
Points To Ponder – Gold vs Evil
I expect to see movements in gold of $50 and more either way in the months and years to come. When we finally do hit the 3rd phase, the moves will be even greater.
There was a guy on CNBC yesterday who made a good point. He was a new guy on Fast Money and I don’t remember his name, but he said, “if things are so bad, how come gold isn’t double the price it is today?” The reason I believe is big money can keep gold down.
Proof can be found that it’s been going on for quite some time by looking no further than the Central Bank Agreements to sell gold. Heck, those agreements had Switzerland sell gold the whole time it was moving higher. How do the citizens of Switzerland feel about that? The IMF has recently been selling gold too.
There is a lot of money working against gold and the battle the Federal Reserve will be waging behind the scenes is going to be fierce. They would love to see the dollar steady while gold falls. Gold is their enemy. Gold is our truth. Some might say it’s “Gold vs Evil.”
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As with any market the ideal would be buy at the lows and sell at the highs, but thats harder to do than say. The ideal approach is to buy in increments at different prices and average your cost. If we have another crisis, gold could easily skyrocket. On the downside, I think its limited at this point
i sold gold @ 18165 but it has gone far today it is 19050, i want reenter the market should i enter at this level or should i wait for correction please tell a what level should i enter.
i sold gold @ 18165 but it has gone far today it is 19050, i want reenter the market should i enter at this level or should i wait for correction please tell a what level should i enter.
i sold gold @ 18165 but it has gone far today it is 19050, i want reenter the market should i enter at this level or should i wait for correction please tell a what level should i enter.
Pranay, the summer slow season is approaching. Time for caution. I don't
follow the rupee, so I can't advise you except for making you aware of this
pattern which has been consistent. I work mostly with U.S. clients.
As you well know, when everyone wants something, it's probably time to sell. With virtually everyone calling for the inevitable continued rise in Gold prices, we could be at or near a top!? The Daily Sentiment Index recently recorded 98% bulls. This extreme optimism should limit the upside potential. Also, the precious metals complex, (silver, platinum, palladium and mining shares) made their highs two years ago. If there were runaway inflation, the commonly quoted reason for higher Gold prices, they would all be moving together.
Contrary to the other commonly held belief that Gold prices increase during difficult economic times because it is a “safe haven,” a careful analysis of past price action will reveal that Gold prices normally rise and fall with the economy. With our economy poised to resume it's decline, Gold prices should go right down with it. A sharp spike up is certainly a possiblilty but that should then be the blowoff.
My crystal ball is very cloudy but historically, Gold should start to collapse in concert with the Dow.
High price – low price? Who knows? Manias can go to extremes.
My forecast, right or wrong, is a deflationary depression with Gold and the Dow eventually matching. It ain't going to be pretty, sorry to say.
BTW, I'm not saying that one shouldn't own Gold. It's the only real money. I just wouldn't expect it to be a great investment but it can be a good hedge.
Hi Bill,
Overall I think we agree on the deflationary depression. However, gold maintains its purchasing power during deflationary times as pointed out by Roy W. Jastram in his book “The Golden Constant.”
In fact, if you look at the gold price action presently, you can see gold is holding its own while most other commodities are getting slammed. This is quite telling and not noticed by most.
I present the case for gold in a deflationary environment in my book, “Buy Gold and Silver Safely,” which I am sending off to the editors this week. It will be available soon. I devote an entire chapter to the inflation/deflation debate with complete analysis of the data.
Thanks for the comment. Will be interesting to see at what price the DOW and gold meet, whether it is a 1:1 ratio or 2:1. Either way, gold is the place to be and as you say, which I agree with…”the only real money.”
Hi Bill,
Overall I think we agree on the deflationary depression. However, gold maintains its purchasing power during deflationary times as pointed out by Roy W. Jastram in his book “The Golden Constant.”
In fact, if you look at the gold price action presently, you can see gold is holding its own while most other commodities are getting slammed. This is quite telling and not noticed by most.
I present the case for gold in a deflationary environment in my book, “Buy Gold and Silver Safely,” which I am sending off to the editors this week. It will be available soon. I devote an entire chapter to the inflation/deflation debate with complete analysis of the data.
Thanks for the comment. Will be interesting to see at what price the DOW and gold meet, whether it is a 1:1 ratio or 2:1. Either way, gold is the place to be and as you say, which I agree with…”the only real money.”