Gold Investing

Similar to all investments and commodities, the current price of gold is in the end driven by supply and demand. A lot can be learned by understanding what the rising dollar price of gold means. Gold has been steadily going up for years now and whether it will continue it's rise is a question many people would like to know.

Humans have been fascinated by gold for thousands of years, by the way it never tarnishes and by its unique color.

Sadly, gold is useless in engineering terms, except for plating electrical contacts, to ensure they never tarnish and lose their conductivity. You will find gold plated contacts on good quality hi-fi components.
The metal is too soft, with too low a tensile strength to be used for much besides necklaces and rings.

As an investment though, gold is a different story altogether.

Gold prices fall and rise, according largely to the degree of fear that people have about the future. When war is imminent, gold prices soar, as more people buy gold.

They are buying gold for several reasons.

Gold Stock prices have been turned back again from major resistance. The 3rd time in a year! What does it mean? Are we entering another gut wrenching correction or will we reverse higher?

Can I be forgiven for asking if Gold shares will ever break out?

Chart 1- Gold Stock prices bouncing off major support for the 3rd time in a year

So what's really happening here?

2 theories:

1 - Gold has been a relative underperformer versus the stock market for the last 6 months. Now that momentum is waning in the stock market, Gold Stocks are slowing down alongside.

Humans have been fascinated by gold for thousands of years, by the way it never tarnishes and by its unique color.

Sadly, gold is useless in engineering terms, except for plating electrical contacts, to ensure they never tarnish and lose their conductivity. You will find gold plated contacts on good quality hi-fi components.
The metal is too soft, with too low a tensile strength to be used for much besides necklaces and rings.

As an investment though, gold is a different story altogether.

Gold prices fall and rise, according largely to the degree of fear that people have about the future. When war is imminent, gold prices soar, as more people buy gold.

They are buying gold for several reasons.

Gold. Rare, beautiful, and unique. Treasured as a store of value for thousands of years, it is an important and secure asset. It has maintained its long term value, is not directly affected by the economic policies of individual countries and doesn't depend on a 'promise to pay'.

Completely free of credit risk, although it bears a market risk gold has always been a secure refuge in unsettled times. Its `safe haven' attributes attract wise investors. Gold has proved itself to be an effective way to manage wealth.

For at least 200 years the price of gold has kept pace with inflation. Another important reason to invest in gold is its consistent delivery within a portfolio of assets. Its performance tends to move independently of other investments and of key economic indicators.

The first known coins were minted in the mid-seventh century B.C. Coins revolutionized the conduct of commerce.

Alexander the Great introduced a regulated and universal coinage throughout his empire. Coins were typically engraved with the likenesses of rulers and deities, providing a historical snapshot. Coin collecting started in Renaissance Europe. Wealthy

Europeans collected Greek and Roman coinage.
The United States minted its first gold coin in 1795. From then until 1933, U.S. mints produced hundreds of styles and denominations of gold, silver and other coins.

For thousands of years Gold has been used as currency and been a highly prized precious metal.Gold has always been a favoured investment to hedge your portfolio against inflation. Gold prices in the international gold market can remain fairly stable through times of instability, recession and currency fluctuations.

The ways of investing in gold can be via purchasing physical gold bullion in the form of gold bars or gold rounds, minted gold coins. Gold shares in gold mining companies are also available and various types of gold funds or mutuals that are managed by professional investors.

Holding at least a small percentage of your stock portfolio in gold bullion is always a good idea.

Article originally submitted to subscribers on
3rd June 2007...

Here's a significant story that's not getting
much play:

Chart 1 shows 10-yr Bonds breaking below support

For over 2 months, Long Bonds have been marching
relentlessly lower, breaking key support at 106.
50 on Friday. The next downside target is the Jul
06 lows at 104 (which equates to 5.25%).

Here's where is gets curious:

The news last week was decidedly negative, weaker
than expected 1st quarter GDP growth and a string
of layoffs from some of the nation's biggest
employers (Dell, Pulte Homes and IBM).

That's a sign growth is slowing which should be
bullish for Bonds. As price inflation fears
subside, Bonds should rally. Hell, even Gold buys
that story and has been moving lower since early
May.

The prospect of higher interest rates looms large.

New Zealand increased short-term interest rates to 8 per year. That's an awful lot of money which has subsequently found its way into Stock Markets, Real Estate, Commodities, Bonds and collectibles.

So when Central Banks come out and say that the world economy is on steroids they should know, they put it there. What they are really saying is that that the effect of their money printing is now finding its way into more visible consumer prices. Which means money printing is becoming less effective as it is being seen for what it really is - currency debasement.

Remember, the definition of inflation is not the increase in price levels but the increase in money supply.

August 1st, 2007

It's one thing to let your profits run on a trade, but it's also true that it doesn't make sense to take unjustified risks with profit that's on the table. So when I wrote recently to my trading signal clients that I had concerns with what I saw unfolding in the spot Gold (XAUUSD) market it was to protect the profit on the table. On our open long trade I increased the trailing stop to lock in gains of +1.3% for the remaining portion (the other half of this trade was closed for a +3.8% gain).

Here I'll explain why I'm a bit nervous and outline a trading strategy for managing risk at this time.

Spot Gold recently posted a big range day that opened near the high and closed near the low.

Over the past year Gold has delivered another three of these reversal days.