Buy, Sell, or Hold?

Every week when I write this blog, I research what is going on in gold trading around the world, along with what is being said about gold prices and trading in various media resources.  It’s an interesting process because who isn’t interested in gold, trading, and the markets, right?  I really enjoy reading up on the economy and what’s going on in the media anyway.

This week, when I began my research, I came up with two headlines: “Gold prices Too High for Jewelry Buyers.” That story is coming out of Reuters and Australia, where apparently a global commodities company felt compelled to state to reporters that “gold prices were too high to encourage buying from the key jewelry sector.”

To encourage jewelry buying, according to Reuters, the price of gold has to be around $800-850 per ounce in order to get buyers to pull wallets out of their pockets.  That’s a little glum, isn’t it?  But maybe they’re a little depressed down under?

Meantime in Arizona, the Arizona Republic headlines its story with the idea that “It’s Never a Bad Time to Buy Gold.” Whew!  I feel better already!  The article ponders whether gold prices would hold up well in a prolonged deflationary spell, such as would be possible in an expanded recessionary economy or if the current recession deepened into an economic depression.

This could be the chance to find out.  The economy’s inflation pressures have faded.  The U.S. Consumer Price Index has dropped in four of the past six months, and last year’s inflationary rate was the lowest reading since 1954.  If it’s going to happen, now is the time.

Gold is in an unusual position because it’s an asset that does well during inflationary times, according to experts.  And the precious metal has bounded back from a low of nearly $700 per ounce just last November.   It hit $1000 per ounce earlier this year, well ahead of predictions.

But for this metal, 68% of which is used in jewelry production, the demand isn’t a function of inflation and deflation.  Nor is it tied to American consumer prices, demand, or confidence.  Much of the demand comes from buyers in India and China (where they love and wear a lot of jewelry!), leaving any negativity produced by a bear market far behind.

Gold will always be a good buy.  You will always be able to read negative (or positive!) things about investing in gold whether it’s jewelry, coins, or bars.  But you are the only one who can decide for youself.

Gold Standard – Part II

Last week we talked about the Gold Standard, which was when the United States government guaranteed each gold-backed American dollar in circulation.

With the current economic contraction that is underway, some people are positing the notion that returning to the gold standard would help.  But the reality is that the gold standard contributed to the Great Depression.

A currency is only as good as the government’s credibility that backs it up.  Sticking with the gold standard?   If a government goes on, then off, then on again,well, you can see that credibility is quickly lost.  And historically, that is what countries have done.

In the years after World War I, many countries had suspended convertibility of gold during the war, and then stayed of gold.  They experienced fiscal chaos as speculators moved in and wildly fluctuating monetary policies robbed citizens of stability needed to rebuild.

But counting on a gold standard, in a fiscally unstable market, when investors, speculators and citizenry doubt governments’ ability to keep to that standard was edging too close to the cliff.

International capital flows became more erratic, not less, as doubts were raised about whether first the pound, then the dollar.

Britain lost ground under these speculative attacks and released its gold standard in 1931.  The U.S. toughed it deliberately raising interest rates in the same year, when the economy was already in near free fall.  The resulting damage to the economy is well known.

The longer a country stuck to the gold standard, the more overall deflation it experienced. Many experts are persuaded that this deflation greatly added to the economic difficulties of those countries that insisted on sticking with a fixed value of their currency in terms of gold.  It got worse, not better.

The bottom line is if buying gold is your standard for maintaining economic stability, then let it continue to be your standard.  As for a return to the gold standard, that is unlikely and probably ill advised.

Gold: Time to Buy, Sell, or Hold?

The price of gold is doing the rollercoaster thing again. Up sharply in the last week, then dropping precipitously in the last several days, and why? Experts tag this to the fact that it did go sharply up and then come screaming downward as everyone rushed to sell their gold at the record high prices.

Consumers are in a state of shock mixed with agony over what is going on in our economy. Daily reports of layoffs, bankruptcies, going out of business sales, and other “end of all” financial dealings are almost too much to take.

Buying and selling gold in shaky economic times are nothing new. Gold has long been called a “barometer of fear.” When people are anxious about the economy – they turn to gold and bid the price up. The two main things that make people anxious are deflation and inflation. Most think that deflation is “falling prices” and inflation is “rising prices.” Actually, rising and falling prices are symptoms. The root causes are decreases (deflating) or increasing (inflating) of the money supply.  Gold has the remarkable ability to store value in both deflationary and inflationary times.

But what about you and your situation? What about your economic worries and woes? If you are concerned about the value of the dollar, is this a good time to sell? Not really… because holding gold may allow you to hang on to the value of your investment.

Economics are cyclical in nature. Almost every country around the world has had at least one major “currency crisis” over the last one hundred years. Those that had some of their wealth in gold survived.

It’s best to think of your personal investments in gold as insurance. Do not think of gold as a way to “make money.” Do not try and “time the market.” It is better to buy gold in small amounts regularly, every month for example, over a period of time. The percentage of your total wealth devoted to gold is a personal decision and depends on your particular situation. A conservative goal would be ten percent. In times of uncertainty the “best practices” percentage could be much higher.

Gold can protect against both deflation and inflation. It would be best if we all kept some of our wealth in gold where possible. The time to sell is when the market is ripe and the value is needed. The time to hold is when the market is rocketing up and downward, like now. Let others panic, while you hang on to any gold you may have, along with its value.