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Implement a Gold Investing Strategy
There was a scant private gold ownership in the United States from 1933 to 1971 simply because the dollar was backed by the immense gold reserve in Fort Knox. Those were the days when the popular press touted the dollar as being “good as gold.” This changed drastically in 1971 when Richard Nixon severed the link between the dollar and gold and set the Greenback free to fluctuate against the world’s other major currencies. The price of gold started to go up in world markets and ownership became a matter of interest not only for American investors but for investors around the world. These factors ushered in a whole new era for the gold market.
Gold Spikes: During the 1970s, the price of gold spiked in a couple occasions. In 1974, it reached the 200 dollar level – an almost six-fold increase from the 35 dollar benchmark bottom. After retracing to 100 dollars in 1976, it spiked again in early 1980 to 875 dollars – almost nine times its interim bottom price. After a descent into the 260 dollar range, gold broke to the upside in 1999 and subsequently made quite a few forays over the 400 dollar mark by early 2004.
Long-Term Strategy: Is the current trading range signaling another, even more pronounced spike to the upside? There is that chance, even tough as pointed out earlier, it is difficult to predict when the move will start. The best strategy for most investors will take advantage of gold’s historic price behavior, this tendency to spike. It is hard for investors to take advantage of these spikes through short-term derivative instruments like futures contracts, options on futures, or bank leverage programs simply because it is so difficult to predict when the spikes will happen. If a leveraged investor were to get lucky and catch a spike, the returns would be outstanding, but the odds weigh heavily against this happening. Statistics show us that 85 percent of all investors in futures and options lose money. That percentage is probably higher with leveraged gold investments.
The best form of taking advantage of gold’s price behavior is through a long-term accumulation program of the physical metal itself, following the guidelines in the previous section of Jump-Start Your Portfolio Plan Through the Ownership of Gold. The strategy is to accumulate regularly and hold through all the minor ups and downs while the primary trend carries the metal higher. In this way you purchase and store for the upcoming spike, taking full advantage of the upside without the risk present in futures and options markets. Given the well-known nature of gold to spike, this strategy to accumulate and hold is certainly the best for most of the gold owners and makes good sense covering both the uncertainties and profit potential likely to surface as the twenty-first century unfolds.
