Don’t Buy Gold (Yet)

Gold’s dropping. You want to buy.

But wait just a minute…

Is your desire to buy gold now based on reasonable analysis of market conditions? Or is it simply an emotional reaction to the selloff?

Let’s turn to one of your letters for some answers:

‘Short-term I can understand your premise on gold,’ writes a somewhat reasonable reader.

‘Markets are doing well so people head in that direction. But for the long-term, I’m a buyer. I think there’s a lot of inflation coming. So I’ll slowly buy in expecting lower priced and will be excited when they fall. But later I’ll expect higher prices and will be excited as they rise… sort of.’

Sounds like you’re grasping at straws here.

I can’t make this any clearer: You shouldn’t even consider trying to buy gold right now.

After all, you are a long-term investor, correct? Give gold a chance to consolidate or move lower. When was the last time you saw any asset class permanently recovered from a violent drop the very next day? It just doesn’t work that way…

There will be snapback rallies and more downside. Expect to wait a long, long time before a suitable base forms.

Also, think about what you just wrote: Markets are doing well so people head in that direction…

Apply this line of thinking to gold. The gold market was booming. So naturally, people headed in its direction. Investors, traders, hedge funds and your crazy coworker bought gold. People wanted to own it because of its performance. Now they are leaving. And they won’t be rushing back to buy anytime soon.

Look, I know there’s a ton of shouting going on out there about where gold might end up.

Every blogger and financial journalist with 15 free minutes and a WordPress account is publishing their own takedown of gold after its big drop.

But where were these guys last month? Where were they when gold began telegraphing trouble in February after it broke below $1,650? If had to guess, I would say they simply weren’t paying attention. It’s so easy to pile on after the fact…

However, this is not your signal to jump into gold to prove them all wrong.

The loudest howls (by far) are coming from those defending gold. They pound the table about multinational conspiracies, computer trading, and the unwashed masses selling gold for all of the wrong reasons. They’ve even blamed the charts that they loved so much over the past 10 years!

I’ll pose the same question I asked the detractors:

Where were these arguments when gold was soaring higher every month? Why has the narrative suddenly changed?

Any way you twist it, powerful emotional forces are at work. Denial is in control right now. Acceptance is a long way off…

I repeat – don’t jump back into gold. It’s too soon.

If you are well versed in trading, you could try to play a snapback move in gold futures or miners.

If that’s your game, keep tight stops and expect the unexpected. This thing is just getting started…


Greg Guenther
for Markets and Money

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6 Comments on "Don’t Buy Gold (Yet)"

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Surely after years (and I do mean years) of reading the Daily Reckoning espousing the virtues of Gold and their readers need to invest in self same metal …. We already are invested.

Bit rich to say don’t buy yet?

When was the advise to sell?

Seems economists are like the purveyors of that great new Smartphone app for Android and IOS.

This brilliant little app (cost is $2) allows you to take a photograph of your pregnant wife and it will miraculously tell you the gender of your unborn child.

In the event it is ever wrong, we offer a full 100% refund.

justin king

Hi Greg, Take a look at the recent articles on the gold attack by Paul Craig JK

truth and integrity
Denial of what? acceptance of what? If you don’t believe me you are a denier; ask a labor politician. Where has the narrative changed? The bull market for derivatives has been 40+ years and the gold bull only 10 years. Get the picture? Gold stocks can rise at a much faster rate than they fall. Maybe you believe governments GDP and inflation figures ex Bretton Woods. Ballpark I would say inflation around 10% for the last 20 to 40 years. That is a 4500% increase (45 times) Ballpark I would say GDP When you exclude wasteful expenditure and government employee… Read more »

“When was the last time you saw any asset class permanently recovered from a violent drop the very next day?”
It happens… look at a gold chart. I am not saying you will be able to predict it.


Gold will not drop below the cost of production.
If it does, it will not stay their very long.

Seamus O'Flaherty

Gold has dropped below the cost of production. Mines vary in their production expenditure and many are underwater right now.

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