Only looking at the gold price chart as an indicator to make a gold or silver purchase is not the best thing to do. One could be distracted by the fact that gold (in most currencies) is somewhere near its all-time highs. One should be more than anything else look at the fundamentals. Those fundamentals have never been better for gold & silver. The most important ones include the follwoing: the monetary base is expanding at a high pace and monetary policies around the world all point to a continuation of that trend, the so-called “money printing” policies are taking place on a global basis and are associated with the debasement of almost all currencies, price inflation is strongly present although the “official statistics” claim there is little to no price inflation. Moreover, gold is about to get upgraded within the banking system as a zero-risk asset, which should increase the demand from the banks. That comes on top of an already exploded demand by central banks over the past few years and an astonishing demand out of China.
Now taking these facts and trends into account, it’s clear that the price chart should not be leading for your decision whether to buy. However, the price chart could help in timing your purchase. From that point of view, we very much like the tips that are shared by the Hard Assets Alliance Team. In the piece below, they have detailed which buying indicators have proved to be reliable.
One clarification: although we tend to use the term “investing in gold” and “gold investor”, in reality owning gold is not an investment. People are holding gold because they want to preserve their capital and protect the purchasing power of their money from a declining currency.
Buying Indicator #1: The 50-day Moving Average
One of the most useful technical buying indicators is the 50-day moving average. Once gold’s price drops below the line, it often experiences a surge soon after, and, other than in a temporary sideways market, rarely returns to that original price point again. Some such opportunities are highlighted in the chart below.
One may ask why gold hasn’t made new highs in the past year. Looking back at the chart, we see that after the end of QE2, gold has traded sideways. However, dips below the 50-day average still represented opportunities to acquire more of the yellow metal. Now that we’ve got another round of quantitative easing, we expect gold to resume the pattern of temporarily dropping below the 50-day average and then breaking out to new highs afterward.
Buying Indicator #2: USD Index
Another indicator that gold is “on sale” is the USD Index. Gold and the USD Index have a strong inverse relationship, meaning that tops in the index represent a good time to buy gold. In this next chart, we’ve circled the tops in the USD Index and marked the subsequent rises in gold prices shortly thereafter.
More Gold Buying Tips:
Don’t get hung up on price fluctuations.
Gold prices are volatile in the short term. Thus, you should not get too hung up on these wide fluctuations. However, if you can stomach the short-term movements, or if your ability to purchase is limited, monitoring a couple technical indicators can help identify appropriate entry points for a position in gold.
Understand why you are buying.
Buying physical gold in an attempt to make a gain on short-term price fluctuations is not recommended as costs can make this an unprofitable venture. Rather, the acquisition of this traditional store of value is a substitute for the fiat currencies around the world – it is better viewed as an ultra-secure savings account that cannot be debased or stolen through fiat money printing.
One of the most convenient ways to purchase and store precious metals is through a SmartMetals account – a breakthrough new program developed by the Hard Assets Alliance that allows investors to buy gold, silver, platinum and palladium through a secure online portal and store domestically or, in the case of gold, internationally in London, Zurich or Melbourne. Download the free SmartMetals Action Kit for all the details.