Greg Guenthner

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 Guenthner
for The Daily Reckoning

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Gold has been in a slump all year. Gold miners too have taken a beating. So what could possibly have changed to make one of gold's staunchest critics change his tune? Greg Guenthner explains why all the bearish sentiment may actually portend good things for the yellow metal. Read on...

Greg Guenthner

Greg Guenthner, CMT, is the managing editor of The Rude Awakening. Greg is a member of the Market Technicians Association and holds the Chartered Market Technician designation.

  • gman

    “don’t buy gold”
    what do you mean? don’t buy physical? or don’t buy paper certificates that allegedly represent gold held somewhere else?

  • Jean

    Some well balanced advice for
    – the cautious long term investor in physical, and
    – the trader in paper

  • Rusty Fish

    “just a minute.” How many seconds in the minute? The precious train
    is not a scheduled shuttle, reversing to find a parking lot but could
    also be bidding farewell soon. The coming ultra-low price will certainly
    bless those itchy deprieved owners for the decade-plus booming years.
    Thus, price consolidates in the hands of the possessive physical owners.
    Maybe, some will be rushing back when their paper continues the meltdown.
    Still event. When is the next active volcano going to blast out?

  • Gert Brough

    Very bold. No fence sitting here. In 6 months time you will be considered either a genius or
    a fool. Is gold dropping or did it dropped? I notice nearly all commodities, indexes and currencies fell almost in lock-step. Fundamentals could not have changed for all of them at the same day. Fundamentals is not the common denominator, the $ is. For someone dollars became a lot more valuable very quickly compared to anything else. Such a someone probably needs lots of dollars to settle a lots debt in $.

  • Brokenit

    Who is that then, do you know ?

  • http://twitter.com/S_Vandervelde Steven Vandervelde
  • http://twitter.com/S_Vandervelde Steven Vandervelde

    I’m going with Paul Craig Roberts on this one. The paper crash has not increased the supply of metal. http://www.globalresearch.ca/the-orchestrated-attack-on-paper-gold-rise-in-the-demand-for-gold-and-silver-bullion/5331797

  • http://twitter.com/S_Vandervelde Steven Vandervelde

    Gold is not dropping as much as paper is crashing. It is not possible to buy gold at these prices.

  • Rusty Fish

    1. Could the fat stash of several thousand tons wondering freely?
    2. Could the sheer paper volume be applied to humble the metal expansion?
    Besides, the reason of turning metal pieces into staples is rather remote; the
    stash would have caved in long ago after rounds of bleeding, instead very much ok.
    Still musing.

  • Alisha

    Investing in gold is one of the best practices, because gold prices will boost in near future, though it is at a steep low now. Read more details:- http://www.primebullion.co.nz

  • Aida Tome

    Gold is the best investment one could ever have. Gold is always gold and could never become an obsolete investment even the passage of time. If its price sometimes goes down it is due to the supply of it which has become higher. However, in reality these days, gold has become rare, thus, making it more expensive. Be wise, invest in gold.
    PGSGoldBuyers.com

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