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Is It Time to Buy Some Gold?

Given all of the incredibly negative press gold has been getting these past few weeks and especially in the past few days, is it time to take a contrarian position? I find it odd that when gold was priced at $1,900 an ounce, it was on its way to infinity, but now that it is trading between $1,200 and $1,300 an ounce (a 36% discount to the peak), it is to be avoided at any price. Those swings of fear and greed make people say funny things at the worst possible times.

Gold ChartGold Bars

 

After recently reading an article titled "Gold: Unsafe at Any Price," (along with seeing headlines for many other similarly titled posts) and negative sentiment levels at all time lows, I could not resist making a small investment on the long side today. When sentiment becomes so one-sided after a steep decline, the probability of a bounce increases substantially. I am in the trade for a quick bounce and nothing more. I bail out under $1,180 and likely begin to take profits over $1,350.

I do not consider gold a long-term investment. As stated many times before, I tend to be agnostic, if not somewhat negatively biased towards gold as it is a non-productive asset (i.e. it has no earnings or cash flow and its price is ultimately dependent upon speculation).

I nailed the long-trade in gold long ago before its breakout in the $700 range and then bailed out above $1,200. The one time I decided to remove my agnosticism to buy gold for a longer-term trade after its initial breakout, I rightfully got a bucketful of cold reality in the face (approximately 15% below my entry point). I even removed my original downside $1,200 target for gold when it was trading in the $1,600-1,900 range--which would have looked like pure genius now that gold has hit that price range. Again, funny what the swings of fear and greed can make you do--no one is immune.

Position: Long GLD.

Disclosure: I consider this an aggressive investment. Do not invest in gold or ETFs unless you can afford to lose some or all of your investment. Shorter-term trading can carry additional potential risk.

Written By: Joshua Ungerecht
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bounce, fear, GLD, gold, greed, trading sentiment