For quite some time I have thought that gold prices should trend downwards towards the $1,000 to $1,100 per ounce mark, with the potential for panic selling and paper trading to cause prices to dip below the $1,000 per ounce mark. This has been my opinion since the end of the first quarter of 2014 and I have shared that opinion amongst investors, collectors and casual acquaintances here at our store. For 2014, the trading range has been from a low of $1220 in January of 2014 to a high of approximately $1,380 in March of 2014. I believe that prices would have trended down sooner but we have had a few instances in the news, both domestic and geopolitical, that have been, uhhhhh, been somewhat serious. There was the missing Malaysian airline, the Malaysian airliner shot down over Ukraine due to a war that has started between Ukraine and Russia, there was the rise of ISIS, there were the race riots of Ferguson, Mo. and of course the continuing Ebola crisis. Through all of these events, and many more, gold has at times shot up a percent or two, but nothing dramatic.
The Fed has continued to disconnect from obvious practices of QE and the bond buying program has virtually ended. Rising interest rates are in the future and everyone knows it. Whether or not the Fed can articulately time the rate increase correctly remains to be seen, but if small interest rate increases occur over time and the economy does not unravel, I would expect gold to continue to decline. The U.S. dollar is increasing in strength, which is obviously bearish for gold and the stock market continues to climb, taking much of the attention off of precious metals. Basically, we are in a bear market for gold and silver in my opinion. It just feels like it and it is not a bad thing.
Let’s face it, gold buyers and silver buyers of the long term nature do not get a lot of love. Speculative traders and options traders, a different store, because they have no actual interest in holding precious metals physically, it is just a mechanism for them to make money on speculative and mathematical trading strategies. They look like heroes when the market is up and they called it. Furthermore, they will look like heroes when they short the coming correction. But once the trade is over, they are done with precious metals. The long term buyer of physical metals can benefit from the entrance and exit of the aforementioned traders as it relates to market momentum and corresponding profits and opportunities for acquiring physical metal.
Since I believe we are entering a period of lower lows and lower highs for the price of gold and silver, this is a time when I would advocate coming up with a strategy of consistent monthly or quarterly buying. We are not in a bull market and I always prefer to buy precious metals when it is not in the news everyday. Therefore here is my recommendation for buying gold:
1) I would not be buying gold right now if you need the experience of realizing a profit quickly. If you want to buy gold now because you are willing to sit on it for some time or for security purposes, that would be a fine move.
2) If gold drops below $1200 and enters into the $1,125-$1,150 range, I would at that point strongly suggest beginning a systematic acquisition program with the possibility of getting a small bump in the price but not enough to liquidate all your metals to lock in a profit.
3) If gold drops below $1,100 and actively trades in the $900 to $1,050 range, this is a great time to continue buying systematically and potentially use GLD to speculate that gold is oversold.
4) If gold drops below $900, I will be selling snow cones on the SE corner of Hawthorne and Sepulveda, so stop by and help a brother out.
In conclusion, most likely the gold price has already somewhat factored in the anticipated future interest rate increases, so it is our professional opinion that based on the information we have today we expect gold to drop below $1,200 but a long term drop below $900 to be relatively unlikely for the short to medium term.
As always, if Meridian Coin can assist you in anyway in your purchase or sale of precious metals, rare coins, estates and paper money, please give us a call at (310) 375-4000.