Now Might Be The Best Time to Buy Gold

Market Summary
Gold turned bearish last fall leading up to in the crash in the middle of April culminating in largest consecutive two-day price drop in decades for the precious metal. A pullback in gold prices was inevitable after it recently experienced the longest rally in almost a century. Gold stopped being considered the safe-haven investment it once was after prices fell when the euro currency almost collapsed last year. Typically, when the currency market goes into crisis mode, gold prices go up. Of course the news that billionaire investors George Soros and Louis Moore Bacon dumped holdings of gold products at the end of last year contributed the 'herd' mentality of investors stampeding to dump the precious metal.

The beginning of 2011 was the last time gold prices were as low as they have been lately and the price immediately surged higher to end that year at a multi-year high. Gold'srecent crash put smiles on the faces of many Middle East Indians as their fascination with the precious metal sparked a buying frenzy at the recent discount prices. Buying gold is more than just tradition in India, and the centuries-old custom of Indians to rely on the yellow to safeguard their wealth from generation to generation is undeniable. Anyone who follows gold knows that the Indian demand on the physical market is one of the strongest underlying foundations of the gold market. After prices bottomed out a few weeks ago gold has been rallying primarily due to surging demand for the actual metal rather than the investment funds that have become so popular with investors attempting to cash in on the surge in recent years. "Depressed price levels were perceived as an attractive entry point by physical buyers and bargain hunters," ETF Securities said. "The longer-term fundamentaloutlook for gold has not changed and appears robust in our view, despite the sharp falls seen in recent weeks."

 

Investor Analysis

As confirmed in the weekly chart above, after gold hit bottom a few weeks ago it has staged a comeback. Recent history, technical signals, and several investment analysts signal a bottom for the metal’s prices. If the signs are correct, now might be a low risk opportune time to buy to gold to catch the next bullish price surge.

Possible Strategy

Above a daily chart for the SPDR Gold Shares (GLD) exchange traded fund (ETF). GLD is a popular ETF investment that seeks to replicate the performance, net of expenses, of the price of gold bullion. Investors interested in participating in the gold market can buy into the actual GLD ETF. Or a more cost effective option might be to purchase GLD call options. Purchasing the July expiration GLD $145.00 strike price call option would cost approx. $4.00 per share (based on yesterday's close), but would generate gains the further gold moved higher prior to July 19^th. For an explanation on the basics of option trading and description of how trade is set up go to http://www.theoptionplayer.com/strategies/

By Gregory Clay