Buying the Dip: Finding
Best Entry Price for Gold
Hard Assets Alliance Team
With the Fed's announcement of QE3 and the world's central banks jumping onto Uncle Ben's helicopter, prospects for a rising gold price are rosy.
But, what if you're new to buying gold, have seen the price rise ever higher over the past few years, and are worried you've missed the best entry point?
If you share our belief that money printing and subsequent currency devaluation will continue, then you need not worry. The long-term prospects for gold are very positive - making any entry point at current levels a good one.
However, temporary dips in price can offer a golden opportunity to buy the metal at a “discount”. How can one identify these buy points? We'll explore the answer to this question below.
Buying Indicator #1: The 50-day Moving Average
One of the most useful technical buying indicators is the 50-day moving average. Once gold's price drops below the line, it often experiences a surge soon after, and, other than in a temporary sideways market, rarely returns to that original price point again. Some such opportunities are highlighted in the chart below.
One may ask why gold hasn’t made new highs in the past year. Looking back at the chart, we see that after the end of QE2, gold has traded sideways. However, dips below the 50-day average still represented opportunities to acquire more of the yellow metal. Now that we’ve got another round of quantitative easing, we expect gold to resume the pattern of temporarily dropping below the 50-day average and then breaking out to new highs afterward.
Buying Indicator #2: USD Index
Another indicator that gold is “on sale” is the USD Index. Gold and the USD Index have a strong inverse relationship, meaning that tops in the index represent a good time to buy gold. In this next chart, we’ve circled the tops in the USD Index and marked the subsequent rises in gold prices shortly thereafter.
More Gold Buying Tips:
Don’t get hung up on price fluctuations.
Gold prices are volatile in the short term. Thus, you should not get too hung up on these wide fluctuations. However, if you can stomach the short-term movements, or if your ability to purchase is limited, monitoring a couple technical indicators can help identify appropriate entry points for a position in gold.
Understand why you are buying.
Buying physical gold in an attempt to make a gain on short-term price fluctuations is not recommended as costs can make this an unprofitable venture. Rather, the acquisition of this traditional store of value is a substitute for the fiat currencies around the world – it is better viewed as an ultra-secure savings account that cannot be debased or stolen through fiat money printing.
As we don’t believe gold is anywhere near it’s top, it’s a long-term investment and only to be sold if you need the cash.
Set aside a fixed number of dollars for gold purchases each month.
A very easy way to take advantage of the temporary dips in price is to set aside a fixed amount of dollars each month for gold buying. This habit, when paired with the basic indicators discussed above, give you the best opportunity to purchase gold at a favorable price.
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