Gold investment strategies

Technical analysis: Many investors base their investment decisions on various types of technical analysis. Typically this involves looking at past price patterns, and trying to draw a conclusion as to the future price trend this might include any of the following strategies:

Charting: In charting price patterns are used to represent buy or sell indicators, usually because a similar pattern was seen before. The criticism is that charts are open to varying interpretations, and it is often only possible to see the pattern after the price move has occurred.

Buy low, sell high: The investor believes the price will revert to a previous level, thus he will buy after a fall and sell after a rise. The assumption is thus that the present price is wrong, and the previous price must have been the right one.

Buy on breakout: The investor looks for a previous price peak or summit, from which the gold price subsequently declined. This price, is known as a resistance point, and the assumption is that it represents a price at which more sellers than buyers appear. The more times the gold price reaches the resistance level, and the more time it spends there, the stronger the resistance is thought to be. When finally the price breaks-out to a higher level than the resistance point, it is assumed that there are no sellers left, and that the price can only rise. The previous resistance level is assumed to become a support level, below which the gold price will not fall.

Momentum trading: The assumption is that the price trend is likely to continue in the same direction as the recent days, weeks, months, or years. However in order to determine how likely it is that the trend will continue, the investor will employ a variety of techniques to determine the strength of the existing trend. For example, the investor may build a relative strength indicator by multiplying recent price changes by volume, and possibly giving more weight to recent price changes than older ones. Moving averages may be constructed, which would have given accurate buy and sell signals in the past (e.g. "buy when the 45 day moving average turns up, sell when it turns down"). Multiple moving averages may be used (e.g. "buy when the 20 day moving average moves above the 50 day moving average").