Should You Buy Gold Now?

Oct. 22, 2010 - PRLog -- Gold, gold, gold. It seems like that’s all people ever want to talk about these days is gold. I remember a song that Elvis Presley and Willie Nelson used to sing.  I don’t know if it was their song, but the title of it was “You Were Always on My Mind,” and I remember singing this song as a duet in college with my guitar to many of the students at Georgia Tech. And now here I am, 13 years after graduating from Georgia Tech, and I feel like singing that song again, “Gold Is Always on My Mind,” when it comes to the topic of investing.

Last month, I wrote that September has typically been the best and strongest month for gold, and gold certainly didn’t disappoint by increasing in 4.78% in September, while gold stocks were up 4.33%.  October is a little bit different than September.  In fact, it’s the exact opposite. October is typically a volatile month for gold. I expect gold to continue to go up through the mid part of October, and then somewhere around mid-October, through the rest of the month, we’ve seen that as the most bearish time for gold. Gold has fallen 21 out of the past 31 years during the time period from October 13 to November 1. So October is the weakest period of the year for gold prices. However, even though that two week period is a weak period for gold, historically, we are still in a strong range from gold which goes from September sometimes through January.  However, that two week period is typically a tough time for gold.

As we continue to look at prospects of gold in the future, there are so many studies and there’s so many things that are being said that point to this bull market not being over yet for gold. I do believe that this bull market will continue. I do not have any projections as to how high gold will go.

However, one of the biggest concerns that I have for gold, based on what I’ve learned in the past with other asset classes, is the big drop that I believe is coming in the price of gold. It may not come, and it probably won’t come, this year. It probably won’t come next year or even the year after that, but at some point I do believe that it’s going to come. I remember back during the real estate craze the over repeated phrase, “Buy more land.  They’re not making any more of it.” I remember talking with people in 2004, 2005, and 2006 and everybody wanted to get into real estate. Everybody was getting real estate licenses. People were getting into flipping homes, and the idea was that real estate always goes up. Well, we know now that real estate doesn’t always go up.

From Chart of the Day: “The chart presents the median single-family home price divided by the price of one ounce of gold. This results in the home/gold ratio or the cost of the median single-family home in ounces of gold. For example, it currently takes 144 ounces of gold to buy the median single-family home. This is considerably less than the 601 ounces it took back in 2001. When priced in gold, the median single-family home is down 76% from its 2001 peak (to a level last seen in January 1983) and remains well within the confines of its six-year accelerated downtrend.”

If home prices can drop, then we certainly can understand that gold prices can drop. Back in 1980, we’ve already seen this happen to gold. So just remember, as any type of investment that you’re getting into, there’s no bad investment (that’s legal, ethical, and moral). There are only bad times to be in them, and that’s something that they actually teach in the Crown Financial Bible Study course at so many churches across the country. As we continue to enjoy this gold rally and this gold bull market, let’s keep our eyes on the horizon and remember that we must have an exit strategy. That is something that I certainly do have, is an exit strategy, to get my clients out of gold when the time looks right. And although I don’t think the time is close right now I do think that I need to take my emotions out of it and have a set system that will get my clients out so I can lock in their profits and move on to another possibly more undervalued asset class.

It would appear, at least from the above chart that real estate may be becoming a good asset to move into. Of course those of you in the Real Return strategy and TDP® have been real estate stocks since November 12th and seen great results!

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Eleven Two Fund Management is a Registered Investment Advisor (RIA) located in Marietta, GA. We are proud to be working with Christian Individuals, small business owners, and Families in over 16 states.