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3 Ways to React to the Price of Gold
When a commodity like gold hits a new all-time high, people take notice. That's what happened to gold back in March, when it burst through the $1,000-an-ounce level. Since then, the downward march of gold's price to around $850 today seems to have traced out a golden peak on the price chart. Here are three different reactions to the recent high price of gold, followed by some advice from Elliott Wave International's analysts:
1. Reaction as a consumer: The first reaction of many people has been to sell their gold jewelry or their old gold dental work that they've been saving in a dusty corner of their bathroom drawer. One retired dentist near San Diego has a side business as a dealer in gold scrap recycling, according to a story in the San Diego Union-Tribune today. He leaves his envelopes in dentists' offices offering to extract the gold from dental crowns, bridges and fillings that have been replaced and to pay the patient for the gold minus a 20 percent fee. According to the article, a "gold crown, usually about 67 percent gold, could bring the seller $40 or $50, depending on its size and thickness. At today's prices, a bridge could fetch $200 or so, after fees," Dr. David Epstein said.
EWI's advice: People can dig through their drawers, but our Elliott Wave Financial Forecast analysts point out that "they'd better hurry, because gold's uptrend ended on March 17, and prices are already off over 13%." (Editor's note: Off even more today with the 1.64% drop to $850.90.)
2. Reaction as an international institution: The International Monetary Fund took one look at its bottom line in April and decided that it was time to sell some of the gold it has accumulated to help cover a budget shortfall of $400 million over the next few years.
EWI's advice: Again from the May issue of the Elliott Wave Financial Forecast, "The April 8th International Monetary Fund's announcement that they intend to eventually sell over 400 tons of their gold supply should help to keep downward pressure on bullion prices, as the market will want to buy the gold at the lowest possible price."
3. Reaction as a trader for the short term: Traders are wondering what's next? Could the latest downtrend be a mere correction or something more bearish? One gold analyst quoted by Bloomberg said that “The pace of decline suggests gold will remain at risk to further corrections in the coming sessions… "
EWI's advice: Yes, it's not easy to say what gold will do in the short term, according to our intraday specialist for precious metals. Here's what he wrote to his subscribers recently: Dear Subscribers, I've just recorded my latest video update for you (April 29). The "easy trading" we've been seeing in Gold and Silver may be over, and this is the time when caution is advised.
Overall, our analysts have called the downtrend in gold and continue to plot out its wave pattern so that our subscribers can take action in advance of gold's move rather than simply reacting to price moves.