Tuesday, September 20, 2011

Is Gold Still a Buy?

Having been a gold bull since early in the last decade, one of the most difficult questions I receive from friends, family and readers is, "What should I do about my gold now that it is trading so high?", or, "I don't have any gold, should I buy now?"

If I had been asked back in, say, 2000-2004, the answer would have been a simple "buy as much as you can afford". From 2004 to last year, it would have been, "buy on the dips."

But now that the gold chart is starting its parabolic climb, the answer has to be more nuanced. I wish I could give a clearer answer than "it depends", but I cannot. An answer can only be tailored individually based on a number of factors such as:

What is your average price per ounce?
How many ounces do you own?
Is it physical gold, mining stocks or the GLD ETF?
Is it all fully-paid or was some bought on (gulp!) margin or credit card?
How is it weighted as a percentage of your portfolio?

In order to make an educated decision on what to do about gold, one first needs to look at the phases of massive historical bull markets in order to judge what phase we are in now.

To judge for yourself where gold is in its advance, refer to my posts about the phases of bull markets: Phases of a Bull Market and Sample Charts of a Bull Market.

Personally, I believe we have entered the first stages of gold's parabolic phase.


Chart courtesy of

It seems history is repeating and the easy money has already been made. What we don't know is how high gold will go during this phase. It should still have plenty of upside from here, but building an initial position at this point could be perilous and steadily selling portions of an existing account to lock in some profits may be warranted as it spikes.

But despite the chart going parabolic, the economic fundamentals of gold are still strong, thus making decisions even tougher. There still exists the danger of a global currency meltdown, which would make selling all of a position just as perilous as initiating a position at these levels.

It may be prudent to hold at least a smattering of precious metals as the ultimate hedge to disaster, but it's a portion you would have to be comfortable losing after the parabolic spike brings prices down massively.

After all, these are challenging times we live in financially and despite what some profess, no one knows exactly what the future holds. Being properly hedged and keeping your head in rough times is usually the best course. As always, I am not an investment advisor and this is not a recommendation to buy or sell. Do your own due diligence and best of luck to you all.


  1. I have a small position in IAU which represents about 3 pct of my portfolio I bought at 17.88. I don't plan on buying more unless it is 5% above my initial purchase price. I set a 5% stop on it at first but took it off. I would have been stopped out by now. I am content to ride out the ups and downs for now. I expect the price to go higher by the end of the year however. How is my strategy?

  2. Evening Max!

    Do you have other gold-related holdings? Investment or trade? Margin?

    The weekly chart looks strong, daily showing gap support at $16.50. The 26-wk EMA is still rising at $16 providing more support. I prefer to buy dips than chase breakouts personally.

    I might put up a chart w/ annotations on this one, since it is a classically trending chart.