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Current Complacency In Gold

19 July 2010 No Comment

One of my favorite things to monitor and watch is the investor psychology of various markets.  Currently, the psychology behind the range-bound gold prices is one of complacency and ambivalence.  Ever since the last major leg up in the price of gold from about $1100 to $1250, we’ve been in a range anywhere from $1175 to $1250 – currently, we’re just under $1200 / oz.

Volume in ETFs such as the SPDR Gold Shares Trust ETF (GLD) and the Market Vectors Gold Miner ETF (GDX) has been fairly low over the last month.  If you simply watch CNBC or read about investing on the web, the chatter surrounding gold has definitely died down since the last move up.  Now, this is definitely normal market activity on any vehicle whether it is gold or something else, but successful investors watch for times like these as its much better to accumulate positions during times of complacency versus times of euphoria.

Does this period of complacency indicate a major move upward in the near future?  Maybe.  If you look at the chart back close to a year ago, volume was very anemic in August 2009 just prior to gold skyrocketing upward.  Perhaps accumulating positions slowly during this time of complacency is a sound strategy, as this could last several months.  Better to accumulate now and let your positions run in times of euphoria.

Obviously, this all means that gold has a bright future ahead where many investors disagree on such a prediction.  In my view, it is a near certainty that more quantitative easing is coming and more economic policy that will be bullish for gold.  It’s not the inflation that will propel gold prices higher, because frankly the deflationary forces are much stronger.  It is however the loss of confidence that will continue as people realize more and more that the government policies to “fix” our economy have not and will not work.

Am I suggesting you go all-in on gold?  Of course not.  But, stubbornly ignoring gold both now and in the coming years will be a mistake in my opinion.  Note that I do not suggest investing in the GLD ETF; I much prefer physical gold.  I do own GDX.

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