Beware of being Short of Gold by Mid August

July 5, 2011 | By | Reply More

Our technical analyst friends tell us that, on balance, they tend to think that gold will go lower, even down as low as $1420 before support steadies the ship as it rides out the storm.

A second quarter correction has occurred for the last five years with the exception of 2010 when it managed a small rise in the midst of its raging bull market.

Septembers have seen the price forge ahead with the exception of 2008 when the financial crisis hit home but by the beginning of 2009 prices had moved ahead of their previous highs so a short lived contradiction caused by exceptional circumstances was quickly overcome.

The reasonable conclusion we can draw from the last five years price action is that we really should not be short gold by mid August, any later would be playing with fire!

 

  • So is there any money to be made selling gold in the next six weeks?

 

As we have the good fortune to be still showing a healthy profit from our stash of gold, even if the price drops to $1400 we are certainly not tempted to be a seller. The other equally important factor that weighs heavily on our judgement is a fear of being out of gold when the market turns.

Aware that the gold market is highly volatile and that, without any significant contradictory fundamental factors that come to mind (except the probability of government inspired manipulation of the price) the continuation of the long term bull market could happen any time, with every chance that it will take off with a vengeance.

Our conclusion is to stick with the gold we already own and try to make an inspired judgement when to top up our holdings. That day is surely coming and, unless unforeseen events develop, it will be within six/seven weeks latest. Our advice to long term investors holding gold is to stick with it.

To those who have succumbed to temptation and sold out but want to get back in for the next move up, be very careful not to be caught out by a suddenly rising market, we have never heard of anybody with the skills to always, or even 50% of the time, buy at the lowest or sell at the top, so this is probably a case of better safe than sorry.

Many long term investors like to speculate with a little pocket money, it keeps their interest going and we are no exception.

From time to time we have made suggestions on option plays and believe that in the short term, technical analysis has an important part to play in our stock market gambles.

Short term put options on Gold ETFs make sense for those of a currently bearish disposition abot gold and our interest as an outright gamble based upon the technicals has been aroused.

If the analysts are proven to be correct then, with the leverage offered by options, good money may be made in the next few weeks without endangering long term gold holdings. Just be sure not to speculate too much of your stash in case it goes wrong and you do not have sufficient funds to top up on gold when it gets back into bull run mode.

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