Wednesday, April 02, 2008

A Look at Gold

As longtime readers know, one of the goals here at is to present perspectives which might aid the average wage earner/investor in their quest to retain the purchasing power of whatever assets/money they possess.

Owning gold and/or other precious metals have been one successful way to do so, as we have shown via charts of the Dow Jones Industrial Average priced in gold. Priced in gold, the U.S. stock market averages have suffered enormous declines even as they reached "new highs" in nominal prices. So much for "stocks are cheap."

Nonetheless, it is possible to lose money when buying gold and/or gold stocks, a fact I have unfortunately proven repeatedly. To help us understand where the price of gold is in terms of technical analysis, I asked frequent contributor Harun I. for some charts and commentary. I reported to him that I had lost money buying gold in late 2004 when it was under $500, and thus the note on one of these charts referring to that time frame.

At the time, it was extremely frustrating to be losing money, as gold traded sideways for long, grinding months. Yet clearly, holding through that period of congestion certainly paid off later. Still, it would have been a more successful strategy to buy gold at its near-term low rather than buy it high and watch it slide for the better part of a year.

Here are the charts. For greater clarity they are posted in full size (approximately 1600 pixels) which does require some scrolling. We think it's worth the exra effort. Just click on the smaller images below to open the full-sized charts.

Harun made these general comments on the charts and gold. Additional technical comments can be found on the charts.

"Hopefully these charts will help even the most bullish investors understand corrective phases.
My comments in no way constitute advise. This commentary is just one perspective on how charts can help one to time investment/trading decisions.

I did this in a pure price format simply because indicators, in my opinion, should be used to confirm price activity.

As an industrial metal I believe it would be hard to justify gold's price. Whether it is rational or not, people are flocking to gold for a reason. While the public hears Relative Strength and yawns, professionals deeply understand its significance whether they publicly admit it or not. Those who would tell the public that stocks are cheap are not to be trusted. Those who actually believe that stocks are cheap should not be managing other people's money. The government may have demonetized gold but it is evident that it has maintained its psychological and physical linkages to value."

Thank you, Harun, for your insights on gold.

To view charts, please go to

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