Normally, when gold prices go up and down like a roller coaster, it’s enough to give you ulcers.
But right now, with the longer-term trends still pointing upwards, dips or corrections in gold prices are a gift. They give you an opportunity to buy more gold before the next leap upwards.
In the words of Credit Agricole analyst Robin Bhar:
“Given the ascendancy we’ve had, (price falls) shouldn’t be a surprise and I suppose any dips, or sell-offs of that sort are manna from heaven for people who haven’t yet bought into the story. You’d have to say ‘buy the dips’ because with all the uncertainty all still very present and far from being resolved, despite better data, you still want gold as an insurance.”
When he talks about buying into the “story”, he’s making the same point I have made in previous posts and articles. To keep your sanity intact when buying gold, you need to step back, look at the big picture, and settle on the long-term story you see playing out over the months and years to come.
In my case, I look at the economic fundamentals of the world’s largest economies, figure there really isn’t much to be optimistic about over the medium term at least, and conclude that investors will be looking at gold as a safe haven for the foreseeable future.
Armed with that story, I don’t see each correction in gold prices as a sign that the party is over. My story tells me that regardless of occasional corrections, the price of gold will continue to rise.
I’m certainly not alone in my point of view. In the opinion of Tom Kendall of the Credit Suisse bank…
“Certainly, there is very little confidence among the major macro-type investors about which way the global economy is going to go over the next three to six months. There is very little conviction one way or the other and that is very supportive of gold.”
In other words, dips in gold prices are currently not a sign to sell, they are a sign to buy more gold. And you keep buying during gold price corrections, right up to the day you feel your story no longer holds. At that point, you change your story, and adjust your gold-buying strategies accordingly.
Further reading…