The Volatility of Gold
Some months ago we cautioned readers that investing in gold at that time was quite a risky thing to do, as it was an even bet as to where gold would head.
We suggested that the reader could flip a coin as to whether to invest or not and strongly urged readers not to listen to the scary headlines that kept repeating the dangers the world is facing as a result of the debt crisis in Europe and other areas.
Gold bugs felt that the price of gold had to zoom up to $2,500 or $5,000 per ounce as a result of this instability. But technical analysis showed it was a dangerous time to buy gold.
Technical analysis is now also cautioning against the purchase. So is the seeming recovery that seems to be taking place in the USA. All of this can change in a heartbeat, but it is better to wait for the heartbeat, before plunging recklessly in.
Technical analysis is but one of the tools that are all essential for investing.
Europe’s Instability
Hungary this week renewed some financing at slightly below 10% interest rate, which is very expensive. Germany saw its rate increase from 3/2 to 3.5 % – still a large jump, although not comparable to Hungary’s.
Hungary yesterday announced that it was seeking a special meeting with the EU to obtain assistance and to re-affirm their commitment to the EU.
So it was recently with Greece, and so it will be with others as time passes. The EU is a very strong and beneficial bond between European countries and brings many strong benefits to its members. The EU will not collapse, nor will the Euro currency, regardless of North American pundits.
There will be adjustments and there will be compromises, but the essential structure will remain. Betting against this by purchasing gold bullion is a fool’s game.
Current Gold Price
Gold showed a remarkable rise in price from $1,500 to over $1.900 per oz during July and August 2011. When a rise of this magnitude occurs, those who watch the markets know that the chances of a pullback and a consolidation are very much on the radar.
It did not take genius to see this. It took common sense.
Now gold has weakened from its peak to a current price of around $1,600. This represents a fall of about $300, or about 16%. Put another way, gold is now priced just above where it was at the beginning of that dramatic rise. Buying it in the fear mania would have meant a large loss.
Technical Analysis
Since the double top of August and September 2011 for the price of gold, gold has been on a down slide. Until this trend is broken by gold breaking through and rising above its top trend line, investors are better served by waiting.
Other technicians would comment that there is a narrowing wedge in the activity since the double top, and that this means that gold will break out to newer and higher highs. This may actually happen, but we feel it is better to wait and see of this breakout occurs, before risking the investment. If it does occur, there is plenty of time to jump on the bandwagon.
We may or may not have positions in the securities we name. In making an investment decision numerous factors must be considered including portfolio balancing, timing, cash and capital reserves, asset allocation and other factors. Readers are strongly advised to do their own research. Matters discussed contain forward-looking statements that are subject to risks and uncertainties and actual results may differ materially from any future results, performance or achievements expressed or implied.
Views expressed are opinions and not investment advice. Persons investing should retain a licensed professional to guide them and not rely on the opinions expressed herein. This report is neither a solicitation nor a recommendation to buy or sell securities. We are not a registered investment advisor nor a broker-dealer. The information contained herein is based on sources which we believe reliable but is not guaranteed as being accurate or a complete statement or summary of the available data.
