Today’s Gold Prices
The Trader’s U E-Letter
Thursday, April 20, 2006
Today’s Gold Prices: Is There Still Time To Jump In and Invest? (Don’t Get Burned by the New Gold Rush)
by D.R. Barton, Jr., Chairman, Trader’s U
Gold has gone crazy. And it’s about time
The “gold bugs” have been waiting decades for gold prices to crank upand today that’s exactly what’s happening. After so much suffering, it’s nice to see them get their day in the sun.
Gold is a hot topic in the media now (and rightfully so). Its price has doubled in past in the three years. Wait a minute for that statement to sink in. Gold has doubled.
In mid April of 2003, the price of gold dipped below $320, and on April 19, 2006, it traded above $640!
Is it time to jump into gold with both feet? Should you avoid it like the plague? What’s a trader or investor to do?
Buy A New High? Sell A New High? Today’s Gold Prices Mean Risky Business, Indeed
Gold has had a rocket in its pocket for the last few days, moving from $600 per ounce to more than $640. This kind of price action puts every breakout player and momentum trader into an ecstatic state. But should you jump in as an investor? Let’s take a look at the chart below:
These last three days have seen moves straight up. No freely traded liquid instrument can keep that up for long. And while the MACD indicator (shown at the bottom of the chart) is confirming the move higher by showing increased momentum, this sure is a tough place to buy.
But to be honest, it is even a tougher place to sell.
The price of gold is one of the truest measures of fear in the markets, and there are lots of issues that have investors worried today:
- Iran’s nuclear posturing and the West’s potential response;
- Oil prices, which are skittish and potentially explosive due to the Iranian problem and other supply related issues; and
- Housing bubble worries
And while these issues are looming, being short gold for any but the briefest pullbacks is most likely a dangerous place to be.
Tough to buy. Tough to sell. So what’s a reasonable game plan for gold?
Today’s Advice on Gold: Don’t Get Caught in the Exuberance But Don’t Ignore It, Either
Investors and traders are returning to gold with a vengeance. The price is acting like a tech stock in the late 1990s. Here are some potentially useful thoughts to guide your investing decisions IF:
- You already have gold in your portfolio today. Good job. Make sure that you have a good exit strategy. If this is a long-term inflation/financial disaster hedge, then you might need to balance your portfolio to make sure the recent run-up in the price of gold has not made it a significantly over-weighted portion of your holdings. If gold has just been a moneymaking investment, make sure that you’re adjusting your stop to hang onto the majority of your profits.
- You don’t own any gold-related investments, but want to. Be on guard against buying blindly at new multiyear highs. Either wait for a pullback to buy, or buy in several discrete steps so you can get a better entry price while not missing the next big move.
- You think gold’s recent run-up is unsustainable. Don’t step in front of this charging bull and sell gold until you see some sign of a turnaround. Paying for confirmation is almost always a good idea when playing for short-term or intermediate-term trend changes.
Gold is a useful hedge against financial foul-ups in the economy and a wonderful hedge against the growing urge that central banks have to print their way out of trouble. But be prudent in picking your spots to enter the market.
Today’s Trader’s U Tips & Tricks
- In October of 2005, I put together a technical analysis of gold where I built the case for a continued rise in its price despite what had been a strong run-up. That analysis piece became a chapter in a very interesting book on gold, published by Investment U. You can pick up the informative tome here.
- What are the reasons for gold’s continual climb? In Investment U # 510, metals expert Michael Checkan points out the fundamental forces driving gold to 20-plus-year highs. Read our 2006 Gold Outlook: The Seven Factors Polishing this Precious Metal, for Michael’s breakdown on the economics of this precious metal.
The Chart of the Week
Gold has been a runaway winner against almost every investment out there. However, as The Chart of the Week indicates, silver has actually outperformed gold since the beginning of the year. In early January, one ounce of gold would buy you 62.5 ounces of silver. Now, an ounce of gold will by less than 45 ounces of silver.
In precious metal bull markets, several factors affect this widely-watched ratio. The most important are the fact that silver is a very small market compared with gold (making it much more volatile), and that silver has many more commercial uses than gold, so hints of scarcity drive prices higher faster.
- Gold as an Inflation and Market Indicator: Where to Put Your Money When Prices Edge Higher
- 2006 Gold Outlook: The Seven Factors Polishing this Precious Metal
- Best Way To Invest in GoldThis ‘Forgotten Sector’ Is Up 489% Since 2000