Buying the Dip: Finding the Best Entry Price for Gold
By the Hard Assets Alliance Team
With the Fed’s announcement of QE3 and the world’s central banks jumping onto Uncle Ben’s helicopter, prospects for a rising gold price are rosy.
But, what if you’re new to buying gold, have seen the price rise ever higher over the past few years, and are worried you’ve missed the best entry point?
If you share our belief that money printing and subsequent currency devaluation will continue, then you need not worry. The long-term prospects for gold are very positive – making any entry point at current levels a good one.
However, temporary dips in price can offer a golden opportunity to buy the metal at a “discount”. How can one identify these buy points? We’ll explore the answer to this question below.
Buying Indicator #1: The 50-day Moving Average
One of the most useful technical buying indicators is the 50-day moving average. Once gold’s price drops below the line, it often experiences a surge soon after, and, other than in a temporary sideways market, rarely returns to that original price point again. Some such opportunities are highlighted in the chart below.
One may ask why gold hasn’t made new highs in the past year. Looking back at the chart, we see that after the end of QE2, gold has traded sideways. However, dips below the 50-day average still represented opportunities to acquire more of the yellow metal. Now that we’ve got another round of quantitative easing, we expect gold to resume the pattern of temporarily dropping below the 50-day average and then breaking out to new highs afterward.