Every investor knows that you should buy low and sell high. If everyone knew when to do both, however, we’d all be rich. The nuances of market valuation can make precious metals investors take into consideration their price points, since what seems like a good value sell today can be a folly tomorrow. As gold prices seem locked in a downward trend currently, those who find themselves selling “high” may regret the decision immediately. That’s the case for gold investors in the month of May, when gold has been oversold to the point that it’s a value buy rather than a value sell.
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Gold Pulling Back
For most of 2016, gold has faced a fantastic future. Speculative long positions on gold, which essentially are bets that valuation will rise, hit five-year highs during March due to a combination of reduced output in addition to decreased dollar value. 1 By April, gold had gained 18% year-to-date. There are lots of analysts who believe that gold still has a long hill to climb, as we’re in the early stages of a fresh bull market. 2 However, even the most vibrant bull market still has lots of variation, which is why gold has taken it on the chin over the course of the last two months. With a strong loss of value comes a lot of uncertainty from investors—and, in turn, a lot of selling low instead of high.
Risk of Overselling
When is a metal oversold? There’s no cast-in-stone rule, but one indication is the relative strength index (RSI) of gold, silver, or platinum. The RSI isn’t a strict number regarding valuation but rather a trend in oscillation that measures the magnitude of selling. Since RSI can apply a number based on historical precedent that indicates overselling, underselling, or average value, it’s easy to take any given metal and determine whether it’s a good value buy or not. Since the gold RSI has hovered at 90 since March, twenty points above the 70 “oversold” threshold, 3 it seems that the current trend to sell off gold is a panic move rather than a wise decision.
Buying or Selling
What’s the right move at the moment for gold? Some analysts note that the competition is snapping up gold eagerly, with Chinese investors grabbing gold at lower prices in order to capitalize on the trend. 4 While some investors on this side of the ocean may be nervous about gold’s future, there’s no question that too many people are abandoning ship instead of stocking up while prices are lower than the norm. If gold continues its long-term trend of upward valuation, those investors who understand the value of gold have no reason to worry.
2 – http://www.zerohedge.com/news/2016-05-26/how-low-can-gold-go-gold-shakeout-continues-stay-course
3 – http://www.stockta.com/cgi-bin/analysis.pl?symb=GOLD&mode=table&table=rsi
4 – http://www.kitco.com/news/2016-05-25/MKS-Gold-Getting-Oversold-On-Pullback-Support-At-100-Day-Average.html