People behave in curious ways. And human behavior when buying gold is no exception.
But before we focus on gold, let’s take a look at when and why people buy just about anything.
Look back to the tech bubble of the late 90s. Smart investors jumped in early. Amateur investors kept on buying as technology stocks rose higher and higher. In fact, millions of hopeful buyers jumped in when prices were at their highest, and the bubble was about to burst.
Fast forward to the real estate bubble, right up to 2008. Again, it was the uninformed buyers who jumped in and made their property purchases in the run up to the collapse.
It has been the same with gold.
The faster gold prices rose over recent months, the more gold was talked about in the media, and the more people jumped in to buy a few ounces.
Fast rising stocks, commodities and other assets attract a lot of attention. Then you get the media buzz. And then a strange herd mentality kicks in, and that drives large numbers of people to jump in and buy at exactly the wrong moment.
As I have said in previous posts, the savvy gold buyer isn’t buying gold when the public buzz is at its loudest, and when gold prices are rising at their fastest.
Smart gold buyers and gold owners wait for corrections.
If you are serious about owning gold as a safe haven, to protect your wealth over the longer-term, your job is not to second-guess what might happen over the next 24 hours, but to consider what is likely to happen over the next year, five years and ten years.
When you look a year or more ahead, there is no reason to believe that gold prices will not continue to rise.
The economic situation in the US and overseas looks as bleak as it did a month ago. Unemployment in the US remains stubbornly high. The European Union continues to struggle with some very serious sovereign debt issues. And China, once the big hope for lifting the world out of recession, has its own serious issues to deal with, including inflation.
And I am far from alone in taking this position.
“We consider the current weakness in gold as temporary and also the slump in commodity prices should come to an end soon,” said Kurt Hug, an investment adviser for the Antares Precious Metals Fund.
The bottom line is that there is still no serious alternative to gold when it comes to finding a solid safe haven.
Also, keep in mind that much of the volatility in gold prices recently has been driven not by individual or even sovereign investors selling their gold. Instead, it has been heavily influenced by big sell-offs by the managers of hedge funds.
For any level-headed gold buyer who has his or her sights focused on the long-term, now is the precisely the right time to buy more gold.
Prices are down, the media has lost interest, and for as long as the economy continues to stagnate, we can expect gold prices to revive from their current correction and continue to rise.