Thinking of Buying or Selling Gold? Keep an Open Mind
You’ve got to change with the times. One point that I’ve reiterated several times is that it’s vital to deploy an investment strategy that incorporates the current market environment when determining how to allocate one’s portfolio.
A great example of that has been the recent climb and rapid drop in the price of gold bullion. A couple of weeks ago, I alerted my readers that a majority of the selling pressure appeared to have been concluded, and that a short-term bottom might be developing in gold bullion.
Since that time, gold bullion has indeed begun moving up in price.
When considering an investment strategy, it’s always important to try to determine what the large institutions are doing. Because these institutions deal with such a vast amount of funds and their reputations are constantly at stake, their actions should help shape your own investment strategy.
As I have said before, it appears as though a large number of institutions are close to completing their distribution of gold bullion. Over the past week, sentiment among these large funds has shifted as they too are adjusting their investment strategies.
That can be seen by the “Commitment of Traders” (COT) report released by the Commodity Futures Trading Commission. The data from the July 9 report show that institutions did indeed increase their long positions in gold bullion. (Source: “Commitment of Traders,” Commodity Futures Trading Commission web site, July 9, 2013, accessed July 15, 2013.)
To have a successful investment strategy, whether it’s gold bullion or any other asset, investors must examine both the market’s technical and fundamental situations. Just because something is undervalued does not necessarily mean it will move up in price anytime soon. There are many occurrences in which a value proposition remains cheap for a very long period of time—a situation known as a “value trap.”
Since gold bullion has swung from optimistic to pessimistic, the investment strategy I would recommend is to use each extreme to look for attractive entry and exit points. Part of an overall investment strategy is to consider the risks and rewards at each price point, as well as having a diversified portfolio.
As I wrote several weeks ago, it appeared that gold bullion prices might have gone too far to the downside. Looking for an opportunistic entry point includes seeing a reduced level of selling pressure as the market bounced up.
This would indicate that there is a greater likelihood that the price of gold bullion is indeed forming a bottom, at least over the short term. Of course, if there is still more selling pressure placed on gold bullion, investors should adjust their investment strategy to account for this new supply.
While there are several fundamental drivers that are positive for gold bullion, including continued interest by the retail public, it is obviously impossible to predict the future. Because so much can change over time, every investor needs to be flexible in their investment strategy and incorporate a philosophy that is opportunistic on both the entry and exit point for any position.