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Sunday, May 08, 2011

When to Buy Gold and Sell Gold

With all the fluctuations in the gold price one can sometimes wonder when to buy gold and when to sell gold.

Many factors influence the gold price. The change in value of the currency against which the gold price is set. Forward hedging by gold mining companies to protect their gold sales, massive buying and selling by institutions, as well as other variables can all affect the price of gold.

In any trading situation for every sale there is a buyer and a seller. If the price is falling and people are selling gold like crazy, what is sometimes over overlooked is, who is buying at those lower prices? When there is a big fall in the stock market, the price do not just ‘go down’ as is implied in the media. For every sale there is a buyer. A person who thinks it is worth while buying a falling stock or share. The same principles apply with buying gold as they do with any other share, stock or commodity.

So when does one buy gold?

Warren Buffett (arguably the world’s best investor and 2nd wealthiest man) once said, "Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can't buy what is popular and do well". This is what the buyers of falling stocks, shares and commodities understand. While everyone is frantically selling in a sort of ‘group think’ or agreement, the buyers with the smarts move in to buy up cheap, understanding that the market for those stocks, share or commodities will eventually rise again. Of course, with stocks and shares this might be considered a bit of a gamble. But with gold, ah, this is somewhat different.

Gold is not just any commodity. It is also money. Gold does not get used up like silver or agricultural commodities. All the gold in the world is still there. It is just moved around or is stored. Gold is used as storage of wealth and as a replacement for currency when the confidence in currency is wavering. It is used, not just to buy and sell. In Addition gold has continued to increase in value over the past 20 years or more. There have been peaks and valleys and regular drops, but even with the drops it has always like a phoenix, risen again to newer and more spectacular heights.

A major part of the reason is probably the falling value of currency. As the currency drops in value it takes more of it to purchase the same over a time period. If one separates value from currency this is easily seen. One year it takes 10 dollars to buy item x. A year later it takes 12 dollars to buy the same item. Over the past 100 years the dollars has dropped in value to around five percent. What you could buy for 5 dollars a hundred years ago now costs 100 dollars. Yet this is not the case with gold. Once ounce of gold still purchases exactly the same quantity or goods or quality of services as it did one hundred years ago. Other factors such as short selling, hedging, and the periodic Asian demand for example, all affect the price to some degree.

So although gold may fall occasionally it cannot help but eventually rise.
So the time to buy gold is very much anytime. When is a good time to sell gold? That really depends on the purposes for which you are holding gold and your individual circumstances. One of the purposes for holding gold is to retain your asset value. Of course a time may come when you may need to utilise some of your asset at which point you sell some gold. Selling gold does not have to depend on the price of gold. Only on the use to which one puts the asset.

A falling or rising 'price' of gold is not a reason for selling gold. Only the utilisation of the asset contained therein for a purpose.

Buying gold can be done any time. That also does not depend on the price of gold. It only depends on the ability to buy and retain gold as an asset.

One can buy large amounts or small amounts on a regular basis. It is the steady accumulation of gold that increases ones asset, not waiting for gold to 'come down' in order to buy it. The upward trends of gold are far greater than the downward trends so, in the long term, anytime is a good time to buy gold.



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