Gold Futures Analysis
Gold buyers come in many forms. Some buy bullion, some coin and others paper contracts. With each, the bottom line is to preserve purchasing power and, hopefully, build wealth. Determining which way the gold market will go, however, can be a tricky proposition. Between the late summer of 2011 the gold spot price came close to $2,000. By the early months of 2013 gold dropped nearly 30 percent to fall below $1,400. This swing demonstrates that gold investment isn't for the faint of heart and that close study of the gold sector is well worth the investment of time before putting dollars on the line.
The Long and Short of Gold Buying
For paper gold buyers, an analysis of gold futures might lead to an investment on either side of the sector. Investors compare key indicators like 300-day moving averages as well as trends in other commodities like silver, copper and oil to determine where to place their bets. When indicators suggest gold will move higher, investors can go long on the price to profit from the difference between the present and future spot price, and shorts are the way to go. While the reward on these types of investments can be great, risk and potential loss is likewise enormous.
Players and Market Makers
Gold futures investors are represented largely by players with deep pockets. Big banks like JPMorgan Chase & Co. and Goldman Sachs Group Inc. carry plenty of sway when betting on one side of the market or the other. While some characterize this influence as "market manipulation," others call these players "market makers." Regardless of which view small investors take, the takeaway is to understand that risk in gold futures investment goes beyond a one-on-one transaction.
Bulls, Bears and Corrections
Whether generally bullish or generally bearish on gold, interpretation of data is analogous to seeing the glass as half full or half empty. Famed stock investor Warren Buffet, for instance, is known for his assessment of gold as a "barbarous relic." Jim Rogers, a billionaire commodities investor, on the other hand, sees intrinsic value in gold. In either case, all markets experience corrections. For bulls, the corrections are pull backs and present buying opportunities. For bears, surges are sell opportunities.
As gold moves up and down on its trajectory, some gold experts dismiss entirely short-term moves of the commodity. Andrew Gause, a 30-year veteran gold and silver coin seller and money historian, advises gold buyers to look at the overall economic picture to determine the suitability of precious metals as an investment. Endless federal money printing, an inflationary practice, drives up the price of all things. "The value of money is controlled by those who issue it," Gause said in a One Radio Network interview. In other words, Gause argues, economic law says more printed dollars results in higher commodities prices.
Romona Paden is a writer based in the Kansas City area. For more than a decade, she has contributed to general business and trade publications, as well as various websites.