When Will Gold Prices Turn Around – What Types Of Strategies Should Use For Better Gold Investment ?
Sun, Mar 3, 2013
Gold Investment Price Today
The gold sell-off of the last few weeks has caught many investors by surprise.
The downtrend has caught the attention of the hot money hedge funds. As a whole, their sentiment towards gold prices is the most bearish it has been since gold prices collapsed in 2008.
So now with gold prices falling fast and sentiment falling faster, the top question on long-term gold investors is when will gold prices turn around and what you should do as investors right now concerning your gold investments?
To do that we’ve got to look at why gold prices are falling and what it will take to reverse the trend.
Who’s Really to Blame for Gold’s Fall?
As usual, anytime there’s a sharp turnaround there are a number of culprits to be “blamed” as if assigning blame makes any sense or is even useful.
When it comes to gold, the usual seller are hedge funds.
In what will eventually be viewed as an overreaction, ETF News reports in Gold and Commodities are Dead, Hedge Funds are Liquidating:
Hedge Funds are spooked that the Federal Reserve will slow the U.S. stimulus programs that have artificially raised prices for raw materials.
Please don’t get caught up trying to buy a dip in Gold ($GLD) or any other commodities, countless Academic research has proven that hedge funds inflows and outflows into commodities tracked by the Commitment of Traders Report have predicted major price moves. Money flows are very important and the “smart money is all out dumping Gold ($GLD) Silver ($SLV) and agricultural commodities ($DBA).”
Certainly sounds perilous.
After all, if the hedge fund community and its $1 trillion of hot money trading capital is pulling the rug out from gold, it surely must be time to sell.
Let’s explore further.
Here are some excerpts from a New York Times article which explains a sell-off in gold from hedge funds:
Hedge funds, which have been ratcheting down their positions in gold futures since early August, were quickly named as the culprits in the latest sell-off.
Some traders said that hedge funds were beginning to unwind, or close out, what has been a very popular and profitable trade for the last 18 months as they bet the dollar would fall and that gold would rise.
The sell-off in gold was part of a broader move in the markets that had investors shifting away from perceived riskier assets, like commodities, and into the dollar in reaction to the Federal Reserve’s announcement…
They should, they’re exactly what’s being said right now about hedge funds and gold.
This analysis, however, is from September 2011.
As we’ve learned, anytime an asset goes up or down in the short-term, the financial community and its most-watched media sources form all kinds of hypotheses in search of the reason why.
Serious investors wondering what to do about their Gold Investments right now and how to profit from this situation are concerned with something much different.
What to Do About Your Gold Investments Now
The most successful investors are much more concerned about other factors than how traders at hyper-trading, short-term focused hedge funds and other institutions are buying or selling today and tomorrow.
The most important factor which affects and drives gold prices is real interest rates.
As we’ve mentioned many times before, real interest rates are what really drive gold prices.
Remember, the real rate of interest is determined by the subtracting the inflation rate from the nominal interest rates based on a common benchmark like the 10-Year U.S. Treasury Bond.
As a result, gold’s recent decline has coincided with a fall in the price of the 10 year U.S. Treasury Bond and a decline in the rate of inflation due to an economic slowdown (just wait for the official inflation reports and there will be a decline).
As Contrarian Strategies trend continues for the next few months gold prices will likely fall even further.
So gold prices may be in the middle of what’s going to be a multi-month correction and that’s great news for gold investors. We’re still in the middle of a long-term bull market and we never entered gold investments for quick trades. Now we’ll likely have the chance to buy more.
Executive Editor, Contrarian Insights
The Group of Big Investors in United States.
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