Saturday, February 21, 2009

When To Sell Gold: Gold Mania

The modern gold rush wealth transfer is coming.In the last blog entry I talked about how to use the Dow Jones to Gold Price ratio to predict how long the precious metals bull market will last and when to sell your gold. That ratio shows the cyclical fluctuation of value between the Dow and gold,
but it doesn't tell you exactly where gold's peak will be. To know where the peak is, you will have to look at the climate on the street. Alex Stanczyk, editor of "Your Financial Future", cites the "everyman" indicator as the best way to know when the value of gold has peaked. This simple concept means that everybody around you is singing the praises of gold and silver as the ultimate investment and giving you investment tips. Your next door neighbour who knows nothing about investing and personal finance starts to give you precious metals tips, your taxi driver gives you precious metals tips, your waiter at a cheap diner is telling you that you should buy gold, etc.

Other indicators of a gold mania that signal the top of gold's value are:

-The front page of every newspaper showing headlines about gold

-People are lined up and down the street at coin and bullion shops to buy gold

-A industry surrounding gold arises, with new gold vendors and coin shops popping up, and related enterprises. Think of all the mortgage brokers that popped up during the most recenet real estate bubble.

The time to sell is the time when the gold market is flooded with investors who jumped on the bandwagon late. At this point the average person still doesn't know that precious metals are by far the best investment opportunity right now. Most people I speak to know nothing about it, and just talk about waiting for their mutual funds to rise back up in price again. The average person follows the herd, and when it comes to investing the herd is always wrong. So when gold is heading towards the peak of its bull market and the masses panic at the diminishing value of their stocks and real estate, masses of people will simulataneously buy gold pushing its price up even further. When the masses start a gold buying craze, you - the informed one - will know that it is time to sell.

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