Buying gold on June 22, 2012 is definitely speculation and even foolish if investors adhere to the old adage “buy low, sell high”. Gold, according to its price history on monthly gold charts (Infinity Trading) topped out at $1920 per ounce in September 2011 and has since dropped to under $1600. The only reason to buy gold today as an investment would be anticipating a rise in the price, making the investment a sound choice for profit. But gold is not a candidate for investment at this time because it is already priced too high. Even if gold were to show signs of going up this is just not the time to buy. In fact, on this day the wise choice would be to sell gold. The reasoning behind this is because according to the monthly chart of gold prices, gold has dropped over $300 per ounce since its top in September and the trend is down right now.
Another reason to expect a drop in the price of gold is because the “smart” money bought gold when the price was low, accumulated it and drove the price higher by not selling. But the time to sell for the “strong” hands in the gold market is right now while the price is still high and as gold leaves the “strong” hands of big money investors it distributes to the “weak” hands of the speculators in the general public who will not be able to hang on to their investment in gold as prices continue to decline. Big money moves markets and the only way to profit in any market is to follow what prices in the market are doing compared to what they have done. Gold has never been higher at its September top and even with a $300 drop in price since its top, the price of gold is still higher than it has ever been in history.
Furthermore in the study of commodities charts and prices over time, there is a fundamental rule of investing known as “the 50% Retracement rule”. What this rule says and can be demonstrated in any significant rise or fall in commodities prices, is that prices will rise or fall to 50% of their highest or lowest price on the chart. This 50% rule can be applied to today’s price in gold by taking the highest price of $1920 per ounce on the gold monthly chart (Infinity Trading) in September 2011 and going back to May 2004 when the price was $371 per ounce. Rounding off these numbers for simplicity gold went from about $400 to $1900 per ounce over this time and rose $1500. 50% of $1500 is $750 per ounce so we would expect a retracement of $750 per ounce from gold’s top of $1900. In this manner, the price of gold can be expected to fall to $1150 per ounce and smart investors who short the gold market or purchase put options which profit as prices fall can count on eventually seeing the imminent decline in price to at least $1150 per ounce or lower.
For investors this should be good news. Going with the trend always profits when the actual trend is invested in. However, this will not dissuade the speculators in the gold market who buy gold expecting a large rise from a high price. Would you stock up on coffee in the supermarket if the everyday price of $2 per pound were to go to $10 per pound and drop to $7 or $8? Probably not, but it would be a good time for the supermarket to hand out dollar off coupons in order to sell at the higher price. The same holds true in any market.
For anyone interested in how markets behave you can probably still find a copy of author Ken Roberts book titled “The World’s Most Powerful Money Manual” or if interested in how these same principles of “buy low, sell high” work in the stock market there is a book by millionaire author Ted Warren titled “How To Make The Stock Market Make Money For You”. Ted Warren is no longer living but left the rights of publication to his wife which were purchased and the book republished by Ken Roberts.