When is the best time to buy gold?

For those of you asking yourselves, “should I buy gold”, the answer is pretty simple – YES. For those of you wondering, “should I buy gold now that it is over $1900, or should I wait?”, the answer is – THAT DEPENDS. Gold continues to push higher because of fundamentals – it is a commodity and all commodities are going to be rising in dollar terms for as long as central banks try to inflate their way out of debt.

If you want a little “better” price on your gold purchases, (and gold is technically overbought at the moment, which implies a coming correction), a good entry point is on any pullback to a prior support level. At this date, we had a brief pullback two weeks ago to the mid $1700’s before rocketing back up to near $1900. If you want to find a good entry point, select price levels that appear to provide support.

There are two kinds of support – absolute price support and relative chart support. Absolute price support means that a particular price point – say for example $1700 – has historically provided support. The simplest way to identify absolute price support is to look at a chart. Wherever you see the price chart fall down to a particular point and then reverse back up – that’s support. The support is stronger if the reversal has happened on more than one occasion.

The other kind of support – chart support – is more ambiguous. This kind of support can be seen with technical indicators like moving averages or price bands. (Here’s an example from 2008.) There is no “right” moving average and no “right” price band – these are purely subjective indicators, but – in spite of their subjective nature, can still provide fairly reliable entry points. If you look at a chart of gold over the last ten years, you’ll see it’s general trend is up, but that it is marked by pullbacks. Often, those “support” levels you see on the chart will coincide with moving averages. Try looking at a 20day, 50day and 200 day moving average of Gold’s price and you’ll like see support. (There is nothing magic about these levels, by the way. You can pick any number you want – try a 14 day, 37 day and 83 day moving average just for grins and giggles.)

Whatever your entry point, you should find a way to buy gold because the fundamentals support it: central banks are destroying the value of their currencies, and that action in turn means that all commodities will rise in value relative to those currencies.

Finally, a word about the various ways to own gold.  Buy physical gold, not an ETF such as GLD. If you buy futures contracts, take physical delivery. Buy one ounce coins or tenth-ounce coins or even kilo bars, but buy physical.