Gold Reaches Support Level

Posted: Aug 13, 2012 12:01 AM

After a slow start Friday morning on a correction to currency values, gold finished the day strong, briefly topping $1,620 before stabilizing. 

Gold ended the week at $1,619.50 and silver at $28.09, leaving the silver/gold ratio at 57.6. 

Pretty much as predicted gold ran into selling pressure at $1,623 as profit-taking kicked in and moved prices back to the new support level around $1,620. 

Going forward from here I might postpone your regular small buy, or shift it to silver.  It’s not unusual for gold prices to move higher in advance of the holidays in India and whether prices hold here will depend on demand from Asia. 

Gold was strangely depressed in the mid-$1,500 range and what we’re seeing now may be a simple correction to support levels rather than a big rally.  It’s too soon to tell for sure one way or the other. 

If prices break higher from here, then start thinking about converting some of your holdings to cash.  Just like when you buy, make your sales in small lots to keep some in reserve in case we experience another parabolic upward spike in prices.  I would start small sales at $1,680 and make the lot size bigger if prices go over $1,760. 

You might still want to make your normal buy and, if you’re holding gold for a long period time, that’s really okay.  The other option is to switch your regular buys to silver, which I would keep doing until prices move over $30 an ounce, or as long as the silver/gold ratio stays above 55.  The silver/gold ratio has been near 58 for the longest stretch since February. 

If the silver/gold ratio hits 60, switch your entire small buys to silver and keep doing that until the ratio adjusts back to the upper 50s. 

The more likely scenario for next week is to see gold prices move modestly higher on light volume.  I don’t see gold making $1,640, but dancing around the $1,620 range all week, closing slightly higher. 

Chris Poindexter, Senior Writer, National Gold Group, Inc