Gold News

Gold: Timing Your Investment

"I am waiting for the Gold Market to go down to invest. Is it likely to slow down soon...?"

MANY THANKS for your email, begins our reply to this new BullionVault customer...

   First off, please understand that we really can't say where Gold Prices are heading next. I can only offer to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk.

What's more, gold is very volatile in the short-term. It moves twice as fast as the US stock market, and the recent spike to near all-time record highs at $850 per ounce only added to this volatility.

But you ask about a "slow down", and Gold Prices have already come off quite steeply from that spike in late November.

The big move higher was kick-started by the US Federal Reserve slashing Dollar interest rates in August. Gold rose by some 25% over the next 12 weeks, as investors sought a defense against the sinking Dollar. So I'd suggest you start by asking:

Is the US Fed likely to stop cutting – or even raise – interest rates any time soon?

It's not just US investors who've seen gold rise sharply this year. It hit new all-time record highs for British and Australian gold buyers last month. Gold has risen by nearly 20% for French and German buyers in 2007 when measured against the Euro.

One point to bear in mind here is the huge growth in the European money supply. Credit and cash supplies in the Euro-zone countries are rising at a near-30-year record. Many people see Investing in Gold – which can't be created at will, and which takes a lot of time, effort and investment to dig out of the earth – as a kind of insurance against this inflation.

Again, do you think the central bankers in Europe are going to raise interest rates or cut them from here? The Bank of England in London just cut its rates today. In Frankfurt, Germany, the European Central Bank stands accused of letting the Euro rise too far, too fast, for Eurozone manufacturing companies to compete worldwide.

Political pressure for cheap money is mounting by the day. How much longer can the ECB's bureaucratic inertia hold out?

Thirdly, I'd point to Asia's new consumers & investors Buying Gold, led by India (destination of one-ounce in every five sold globally last year) but increasingly driven by China. Just today, China's gold demand was reported to have grown by 20% in 2007 so far.

The country's new middle-class still believes that gold has a timeless, intrinsic value, just like rural farmers across East Asia. And the richer they become, the more gold they buy – or at least, that's what's happened so far during China's boom.

No guarantees this trend will continue, of course, and Western investors might lose their hunger for gold in the short-term as well. But put it all together, and we remain more than "bullish" for the long term.

Picking your entry price is important, of course. But I gave up trying to time this market when it went from $300 to $400 and then $500 per ounce inside two years (2003-2005).

I hope this helps – and good luck with your gold investing!

Adrian Ash
Research, BullionVault

Adrian Ash

Adrian Ash, BullionVault Gold News

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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