When to Sell Gold

A blast from the past, the top of the 1970s bull market in gold...

BUSINESS WAS SO GOOD, Empire Diamond & Gold-Buying Service had to hire a security guard to handle the crowd in their office, writes Tom Dyson for Daily Wealth.

"We've been serving about 100 cups of coffee a day, going through three or four pounds daily," said an assistant, hurrying away to fill the empty pot.

It was January 1980, and gold had formed a speculative bubble. Gold Prices rose from $225 in December 1978 to $480 in December 1979.

The price peaked at $870 intraday on January 20, 1980. I found Empire Diamond & Gold-Buying Service's story in the New York Times' archives from January 1980. When the Gold Price soared, Empire Diamond was suddenly inundated with people looking to sell gold trinkets.

"We are handling a couple of hundred customers a day off the street and the average wait is three hours," said the owner, Mr. I. Jack Brod.

"Nobody has ever seen anything like this. I'm looking for a beautiful year in 1980," said Bob Deitel, owner of the Madison Coin Shop in Connecticut.

If you're trying to spot the peak of a gold bull market, this frenzy of "dishoarding" is one clue to look for. Dishoarding is what happens when people decide the Gold Price is so high, they'd like to swap their old gold heirlooms for cash. They pile down to the local gold and coin stores with their lockets, scarf pins, and old gold dental fillings.

The massive new supply floods the market and causes the Gold Price to collapse. The intense dishoarding in January 1980, for example, was one reason gold's bubble popped. Gold fell $250 in the final days of January and then keep falling for the next two decades.

Here's the thing, Gold Bullion just hit $1,000 and is within $50 of an all-time high. Gold fever has returned to America. Last week, the Daily Sentiment Index recorded 96% bulls in gold. Even my mother is thinking about buying gold. (I've been telling her to buy for the last six years.)

A few commercials on TV are offering cash for gold. One of these companies even paid for a spot in the Super Bowl. Pawnshops are doing well right now, too. But so far, it seems people are still more interested in accumulating gold.

Until you see lines around the block at coin shops and NYT articles about dentists earning thousands of dollars from used gold fillings, you should assume we're still in the bull market.