Gold is not a stock. It is a commodity. There is a whole lot of evidence that many governments will be dumping over the next year. If this truly happens, this will be devastating to the price of the gold you hold. What’s worse that that? People that are holding gold suddenly getting into a panic and selling. That, too, will drive the price down. What’s even more likely is that the US Federal Reserve and the European Central Bank will dump into this momentum as their is an inverse correlation between the price of gold and the value of a currency. Many governments that are “over extended” and printing currency are thrilled to have gold fall in relation to their currency. That said, there will come a day when they see it so cheap they will slowly start adding back to their supplies. (This is like a “dump and pump” in the smallcap stock arena!)
If you bought gold over $1700, you clearly lost the bet. You may not even win in the long term. Decisions on when you should sell, whether you should sell, should you average down, etc. are yours and yours alone to make with your family and your advisors. I don’t see it going back to $1700 unless the United States defaults and gets into a deep depression. That said, there is a low point. At some point everyone with cash is going to say “this is one hell of a buying opportunity!” and get back in. Don’t hold your breath.
Should you just dump gold and be done with it?
I have this question in my inbox. Keep in mind that I have never recommended gold or any precious metal by a bullion purchase. I am not going to make a recommendation here. Unlike the Dow and the S&P, there is no reason to think that gold would return to its all time high unless something extraordinary happens. When the markets lose 20% to 30% on the Dow or the S&P, generally selling at those lower levels is a bad idea as you know that half of that loss will be recovered within weeks generally. That’s the nature of stock crashes. The balance of that loss may take a few years as we have seen with recent highs versus the Crash of 2008. Does that have any correlation to gold? I think there is too much selling coming. I think between panicked small time holders and governments selling to get out of debt we are likely to see these new prices as highs rather than lows. That’s my take. I could be completely wrong. Again check with your advisors and your family before making quick decisions.
Short term plays?
Yes. If you have the stomach for it, there are some great short term plays coming in gold and silver. These will be great swings. You will have to watch the news and have luck. There will likely be no day-to-day logic for any of this for a long time. Personally, I am going to stay away from playing gold futures. I really don’t like them to begin with. I always though there was a bubble.