Timing Gold

I’m no Technical Analyst. But when buying gold and silver it’s not just good enough to know what to buy, but also when.

I made a set of chart showing all of my gold and silver purchases in the past year and tried figuring where I made some timing mistakes, where I bought too early or waited too long and how I could improve my buying in the future.

They say a great investor only makes a few purchases throughout his entire life. Warren Buffett says that at the most 20 trade orders should be given. Imagine you had a punch card that only allowed 20 trades. You can either buy and hold 20 issues or buy and sell 10 times. This follows the first strategy of buying big at a bottom. In this case the investor is making a long-term purchase he feels is a value buy. Thus he doesn’t mind if it fluctuates a few dollars lower.

The second startegy is by doing something we call “Dollar Cost Averaging”. You buy in at various times eventually averaging your cost. This is also very beneficial for those long-term investors who are not that familiar with calling proper bottoms. It also benefits the individual who is still earning a living and saving that money in the form on an investment.

Before I buy I usually check for two things. I’ll first look at the general sentiment. I remember watching gold knocking up $10+ days as it was within close range of its all-time high. Naturally and quite frankly I wasn’t the only one watching. Just about every analyst on The Street (no pun intended) was talking about it. My thought? Bad time to buy.

The second thing I often check is for a second opinion – the Technical Analysts. These have been of much help in the past. When you’re biased towards buying in, it often pays to hear what the analysts have to say. You’d be surprised.

First Gold Purchase
After $710 gold I waited. Of course things quieted down and quick. I made my first Gold purchase in June 9th. Gold was in a free fall and I felt it was safe to get in. Considering the past 8 months I pretty much bought at average. I heard analysts saying that Gold was heading to $550 (it touched $560 in October, an absolute bottom I ended up calling).

Lesson #1: Patience… Would I have waited just another two weeks until the hype had cooled entirely I would have made a fine purchase.

Gold Purchase #2
Late September and Gold had been trending down, from its rally to $660, for 3 months. I saw an extremely low sentiment now that the all-time high attempt had failed twice and a good dose of investors had gone cold trying to secure a profit. Then came a down day. I remember seeing the prices of gold and Silver plummet 8% along with every bit of confidence investors had stood with till then. I called the Bottom and loaded up on the Metals.

Lesson #2: Patience Pays! I had waited and I was paid in full for my waiting. Will we ever see Gold at $560 an ounce again? For that we must wait and see.


Gold Purchase #3
About a month later I made another purchase this time in a quarter ounce sovereign. My timing was right but what I hadn’t realized was that I had purchased the coin at a 30% selling premium that is not paid when sold back to the coin dealer. I soon sold (at a loss) when I recognized that the difference in silver would be far more profitable than holding. I closed with a 25% loss).

Lesson #3: And a good one… Buy what you know. Many traders and investors try buying things they barely understand. I made that mistake and paid a hefty price.


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