Matt Insley

If we lived in India or China the holiday season would be filled with gold purchases.

Here in the U.S. we’re not as apt to deliver gold for Christmas as we are a new video game or iproduct.

There is however one trend here in the U.S. that can help us with our gold-buying mindset. Let’s take a look…

A few weeks ago our own holiday season kicked off with Thanksgiving. And with the advent of the holiday comes the first official buying day: Black Friday.

What’s Black Friday got to do with gold? Not much. But there is a lesson: buy when there’s a bargain. After all, who wants to pay full price for an item – when you can buy it at a discount?

That said, the best time to buy gold is simple: You buy it when it’s on sale!

The Gold Sale Season?

Relatively speaking, gold is on sale right now. From its most recent price above $1,900, buying gold today is like slapping a 10% off sticker on the 2011 high. But there are more immediate price targets that we’ll want to keep an eye on – one that may offer an even more substantial savings.

Look at it this way…

2008’s market meltdown gave us a solid understanding of gold price action amidst turmoil. Back then, throughout the whole year, the fundamental case for gold remained strong. Yet, the financial fallout shaved 25% off the price of the Midas metal.

If we use 2008 as a playbook, which I urge you to often do, you’ll see that regardless of the fundamental case for gold (see: immense amounts of government debt and stimulus) prices can still drop.

So, regardless of the recent Fed chatter (which is, by nature, bullish for gold) there are two reasons to think that general market action could pull the price of gold lower. Namely, the “fiscal cliff” and “debt ceiling” talks.

Time will tell, of course. But the key for us is having a target gold price where we know we’ll be buying the metal at the best relative price we can get. Why buy that 55” Samsung flatscreen at $1000 when you can get it for $799, right?

Looking at the 6-month chart, gold’s price action tells us two things…

First, this 6-month chart shows the last two “steps” higher for gold – at $1,600 and $1,700. In a longer view, it’s clear that gold has been slowly stepping higher, a 100 bucks at a time. Indeed, if you were to lay this chart over a chart of the continually increasing money supply, you’d see a solid fundamental relationship.

This stimulus-based relationship goes back to early 2009 (when the bailout and fed action began) with gold starting at $1,000. Like a superstitious hotel elevator, the price of gold made a steady stop at every $100-floor, other than the 13th. Right now we’re sitting at the 17th, but we’re, not at the penthouse yet my friend .

The second trend you’ll notice in the chart above is a consolidation pattern forming, again. Much like we saw gold consolidate around $1,600 earlier this year, prices look to be consolidating around the $1,700 mark, today.

Consolidation, as we’ve outlined here before, is the precursor to a big move. But, buyer beware…this move could come in either direction.

If the market plummets on fiscal cliff or debt ceiling talk, gold could soon follow. Remember, when investors start losing money in other sectors and need to clear up some cash, they start selling their good assets with the bad. That’s what we saw in 2008 and we could be set for a repeat.

Hunt For Bargains At These Levels…

This is where the bargain hunting begins. With a clear head and, more importantly, a clear price target, we can make sure we’re buying gold at the best possible level.

There are two price points where you can count on gold being a good buy.

The first would be on the upside. If we see gold break out of its consolidation around $1,700 and it breaks above $1,745, it’s time to grab some gold and hold on. A sharp move to the upside could signal gold’s next try at all-time highs.

Our other buy point could be on the downside. If gold breaks from its recent consolidation to the downside we could see a quick $100 shaved off the price per ounce. If you’re a long-term buyer of gold, don’t even pay attention to this trading fluctuation. But, if you’re looking to buy some bullion, this is your opportunity.

Looking at the chart we could see a solid opportunity around $1,575. This price target takes in to account gold’s past consolidation point. With strong support at $1,550 I’d be a buyer at slightly above that, at $1,575.

After a quick stint at lower prices gold’s fundamentals could kick in, just like we saw in 2008. Over the past 5-years that was the best buying point for gold. It also led to a 150% gain, just in the price of bullion.

If we see a portion of that move, gold could be perched well above $2,500 sooner than you think.

At either buy-price target, though, look for gold to continue its fundamental relationship with the ever-growing money supply (thanks to Ben Bernanke’s latest comments we can count on the money supply rising for years to come.) Luckily, though, this confluence of events – fed spending and fiscal cliff looming – could lead us to a solid bargain. Stay tuned.

Keep your boots muddy,

Matt Insley

Original article posted on Daily Resource Hunter 

Matt Insley

The Managing Editor of the Daily Resource Hunter, Matt is the Agora Financial in-house specialist on commodities and natural resources.  He holds a degree from the University of Maryland with a double major in Business and Environmental Economics.  Although always familiar with the financial markets, his main area of expertise stems from his background in the Agricultural and Natural Resources (AGNR) department.  Over the past years he's stayed well ahead of the curve with forward thinking ideas in both resource stocks and hard commodities. Insley's commentary has been featured by MarketWatch.

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