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Trading Gold Futures

Updated on August 16, 2010

Trading Gold Futures

In recent months we have seen a steadily increasing public interest in trading gold futures, and it looks as though gold has become “sexy” again, although as a general rule it is basically frowned upon by Wall Street enthusiasts, and for good reason: If you push investment in precious metals, it’s almost antithetical to the equities market (except for the mining sector, of course). Think about it: When people start to lose confidence in paper assets, or any type of investment instrument that is a paper representation of something tangible, they have a tendency to want to move their money into hard assets as a store of wealth. And let me tell you, Wall Street’s whole goal is to sell investment products, most of which are derivatives of some kind, meaning paper promises or certificates or whatever else as a representation of something tangible. So it will always be in Wall Street’s best interest to discourage investment in hard assets, so that they can push their own products…but I digress. Trading gold futures, in this present market anyway, is not really something that I would say is good for the short-term “hit it and quit it” trader. Yes, you can make some big bank off of some good intra-day moves or even short-term daily moves, but believe me, in the kind of bull market that gold is in right now, I would think it would be more favorable to just buy the dips and keep on riding the bull wave. Some people think that gold has already hit the end of its bull run because it’s trading (as of this writing) around $1,100 an ounce, but I believe that gold has a LONG way to go, and could possibly go parabolic before it hits its top. I actually believe that anywhere between $5,000 to $10,000 an ounce is not too far-fetched for gold’s potential price. If people truly understood how the price of gold has actually been suppressed by central banks the world over by way of flooding the market with intermittent gold sales (such as happened in 1999 when Gordon Brown pulled one of the most asinine gold sales in history), they would understand how true it is that even though gold is at all-time highs, it is still severely undervalued.

Image courtesy of Google Images
Image courtesy of Google Images

Gold Futures Trading

What I’m basically doing here is building a case for a “buy and hold gold” strategy because I truly believe that gold has only just begun. Not to mention the recent revelation that the price of gold on the COMEX has been manipulated for quite a while now by only a small handful of large bullion banks holding an extremely heavy concentrated short position in gold (to the tune of 25-30% of the total open interest in gold on the COMEX), which is yet another factor keeping a (temporary) ceiling on gold. Put this together with the fact that overall production of gold by mining companies has been sub-par as of late, and international demand for physical gold has done nothing but increase in places like Dubai, China, and India, and you’ve got yourself a serious case for a very large upswing in gold’s price, potentially being akin in scope to the Hunt brothers silver price explosion a few decades ago. So I believe, with all of these factors being in play, that it would be safe to be long gold, and ride out any temporary dips in price, even to the point of dollar-cost averaging on the dips. Yeah, there are some gold permabears out there that would disagree with me, but at the end of the day, price action will rule the day, as it always does. Add to all that I’ve already said the fact that on gold’s price chart, there is a WHOPPING head-and-shoulders top that’s already seen a breakout to the upside, and from the looks of things, it’s still just getting started. So, while I believe a case can definitely be made for trading gold futures on a day-in-day-out basis, I would not rule out buying some gold to hold on to and sit on for the longer term. As a matter of fact, I would say that buying physical gold is the safest bet for times like these; our dollar has seen it’s best days, and the way our country is printing money and monetizing debt like it’s Monopoly money, hyperinflation seems just around the corner; another strong point for owning physical gold. Just some thoughts on the gold scenario; hope you got something out of it.


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