Gold investment Guide: Beginner Friendly, Easy To Understand
You want to invest in gold, but unsure where to begin with. You've found the right piece of content. This post will help you understand all the fundamentals you need to be a conscious gold investor.
This is a beginner-friendly yet comprehensive post. If you can commit to reading this post until the end, you'll have a solid base most average investors cannot build in years.
There's a lot of confusion about investing in gold. A lot of “gurus” make it more difficult than it is.
In fact, when I searched on Google “How to invest in gold?” I couldn’t find a complete guide. I mean the type of guide that can summarize everything for the people doesn't have years of market experience.
There is some information here and there. However, they are either too technical or just incomplete to give the reader the entire picture.
I really want to simplify the gold investment today.
Anyone can make it as complicated as they want to. However, complicated investment strategies are hard to implement. They are also not proven to be the most profitable ones.
How do I know?
Most hedge funds lose money. Most asset management companies close entire years with the loss. Although these organizations employ teams of great professionals and use the most professional tools to run the most complicated mathematical analysis they still lose money.
Please note the investment strategies and ideas I am going to mention in this post are my opinions only. They are definitely not investment advice. You should always make your own research before investing in any kind of market.
That said, everybody's financial literacy is different. I don't expect all readers to come from similar backgrounds. Depending on your experience with the financial markets, this post may or may not be very understandable for you.
I dedicate this post for those who want to invest in gold but cannot figure out the best way and time to do it.
I have intentionally avoided technical jargon that may complicate the topic. I wanted to make it crystal clear for everyone to understand so that they can make their own educated decisions.
Gold Investing Fundamentals
Gold has long been a popular asset class. It was used in the past as a currency to buy products or services. Nowadays, it is more of a commodity rather than a currency. I don't know any nation that uses gold for everyday shopping today.
What to know before investing in gold?
Every investment vehicle has its own market characteristics. Therefore, it is crucial to know those characteristics before making any type of investment decision.
A lot of people wonder when is the good time to invest in gold.
There is no good or bad time to invest in any financial instrument. Also, this rule applies to all markets you can name. If you employ a good investment plan that has an edge over the market you'll be profitable.
That being said, there may be particular times you want to invest more often than others. We are going to talk about that later in this post.
Know every investments have a certain risk
Before we delve into any deeper, you should know that all investments carry a certain degree of risk. Indeed, risk management is the most critical element of any type of investment.
Some of the investment you're going to make is going to lose while others are making you money.
That's right, not all the investments you make will result in a profit.
There is no single investor in the world who is profitable all the time. Even Warren Buffett has failed in some of his investments. This is the rule of the game. Therefore embrace your losses.
You should aim to earn more than you lose with your investments so that you can be a profitable investor.
It is the reality that applies to any type of investment. However, losses are barely mentioned in any source teaching people how they should invest their money.
Take Consistent Long Term Action
What makes investors wealthy is taking consistent planned action. If you have a solid investment strategy that's right a few percents more often than it's wrong, you're going to make a lot of money.
The real skill to be a profitable gold investor doesn’t come from knowing where the gold prices will be in the future. Gold will move in any direction it wants. You can make your educated decision about where it may be in the future.
The core skill to be a profitable gold investor is managing your risk so that you can see the positive return on your investment strategy over time.
Learn how to size your investment position
As an investor, you should know earlier how much of your money you're going to invest in gold.
You should know how to size your position so that you can keep investing without having a significant loss of your initial capital.
Position sizing shouldn't be done as a percentage portion of a portfolio. It should be calculated by considering the maximum amount of loss in a worst-case scenario.
Knowing what portion of your capital to invest in gold combined with a good investment strategy that gives you an edge will make you money over time.
Learn Risk/Reward Analysis
To allocate proper position sizing you need to understand risk/reward analysis. How much money you will risk to earn what amount of money.
Before investing in gold you should define at what price you will buy it, until what price you will keep and sell it (with a profit or loss). All these points should be clarified beforehand but not on the go.
By using this data(entry and exit points) you should calculate the maximum loss you can have from a single investment in proportion to the size of your entire portfolio.
I wish I could explain position sizing in this post. However, it's very detailed to be the subject of a whole another post.
But, I still want to give you a small example to give you an idea.
Let's say that you have a $100,000 account, and you want to invest a portion of it in gold.
You define your entry, exit, and stop-loss points for your investment. If the planned market movement doesn’t happen and your stop loss triggered the amount you will lose shouldn’t exceed a certain percentage.
What is a good percentage to risk for each investment you make?
There is no perfect number. However, most investors keep their risk at %1 – %2 per position. Doing so will allow you to keep investing in the market without losing your entire capital. Although you may lose a few or more consequent trades or open positions you will not find yourself out of the game.
You should cut any loss while it is small. The biggest mistake you can make is holding to a losing position with an expectation it will be ok again.
If you have planned to sell your gold with a loss once it hits a certain price, just sell it there. I know it may be emotionally devastating to see you have lost money. However, most people lose their entire capital for the reason they don't cut losses while they are small.
Trader vs Investor
You may have already heard earlier:
“Don’t trade with your money but rather invest with it.”
There is no big difference between trading and investing. The actual difference comes from the time frame you keep a position open. In both cases you need to know reading charts, and execute a strategy that will give you an edge over the market.
When people say invest rather than trade they may also be suggesting being a “value investor”.
What is the logic behind being a value investor of gold?
Invest in gold only if you believe the gold is underpriced today and will move up in price sometime later.
This is the type of investment Warren Buffet has made. He could analyze and find undervalued stocks. He has purchased them cheap with the confidence they will grow in value over time.
It can be done by only a few people. That type of approach definitely doesn’t make any money for you and me.
There are not a lot of people who have made a fortune by being a value investor. You haven’t heard the stories of people who have lost their entire savings by trying to be a value investor.
We don't know what is going to happen next.
You cannot estimate where the gold prices will be based upon your observation of what is happening in the world.
There are a lot of factors that go into the calculation that affect gold prices. Unless you are an insider (which is not legal) you cannot effectively estimate gold prices consistently.
Sure you may make a few winning estimations here and there. However, you are doomed to fail over the course of time since it is nothing but gambling.
There are many things that affect gold prices we have no control on.
You will never know if FED will change its monetary policy tomorrow, or if China will decide to store more gold for some political reason. Once all of the contributing factors work together (or against each other) there may be even more different scenarios.
Another big problem with the value investing approach or “guesstimating the future”, markets don't always respond to the same stimulant the exact same way.
In some cases, markets get really excited from a minor change in monetary policies, at other times large modifications may result in no reaction. Markets may react to the same stimulant differently at different times.
What is the best way to invest in then? What can make us a profitable gold investor over time?
The best and most consistent way of investing in gold by having a solid investment strategy. A mathematical model that is objective and eliminates our emotions being involved in the process.
I am talking about using technical analysis to make investment decisions. If you want to invest in gold you should know how to read charts. You have to be familiar with candlestick patterns, moving averages, and overbought & oversold conditions.
These are the most essential information you need to be equipped with. That said, knowing the basics doesn’t automatically translate to be a profitable gold investor right away.
However, it is a good start to make educated investment decisions. You need a strategy you can test and tweak and hopefully utilize.
Where can you find a good investment strategy?
It is not an easy question to answer. You need to test other people's strategies to use one of them or to develop your own.
Before using any strategy in the markets you have to test it using the old market data. There are a lot of programs that can help you to do backtesting using years of market data in a few minutes.
If you cannot afford it or you are not sure how to do it, you can scroll on charts to backtest your strategy manually. This is going to take time but still a good way to backtest markets.
You can also paper trade to test how your strategy performs with the current market. Paper trading is using fake money to test your investment/trading strategies.
Only after being sure, you have a winning strategy, you can start slowly trading with the real money.
Hey, when I say “trading” I don’t mean buying today and selling in a few days or less. I mean having a position that you leave open from a few months to a few years.
The only way to make money investing in gold is to have a strategy that has an edge on the gold market. By implementing the necessary risk management measures and being patient you can grow your capital over time.
Does it mean we should ignore what is happening in the world altogether?
Absolutely not. You need to keep an eye on what is going on with the world economy. However, it is not going to be a major decision point making any type of investment.
Here is why I am thinking so.
Once you hear the news they are already old. Investors with deep pockets took action and took their position on the second news is released.
Taking investment decisions using news is not going to make you money. Because everyone else is reading the same news but only a few percentages of people making money consistently.
The essential information you need to know major events create volatility in the markets. You should be more careful when placing an order during these times.
Understand how the markets work
All markets work with the same basic principle.
What is that basic principle?
Supply and demand. Markets move as a result of change in supply and demand.
If demand for gold becomes more than the market is willing to provide, the gold prices increase. Similarly, if the amount of gold supply exceeds the gold demand, the gold prices decrease.
Diversify & Grow Your IRA with Metals and Cryptos
What different types of Gold investment options are available?
1. Physical Gold
Physical gold is worth holding since it is a universal store of value and available finite amounts. Most central banks have gold reserves. When we talk about physical gold, the most popular forms are bullions, bars, and coins.
There are a lot of reliable companies you can get started with investing in physical gold. The best and probably the most recognized one is Regal Assets.
You can buy gold either with cash, rollover your IRA or 401k into gold. Obviously, not all types of gold are eligible to be included in an IRA or 401k. If you contact the company from the link above they can help you through the entire process.
Owning physical gold below recommendations will help you:
Buy most liquid gold only
If you plan to buy gold coins, choose the ones that are most liquid. You should be able to sell your coins anytime you want to without having any difficulty.
Illiquid gold coins can make you lose more from the actual market value of gold since there will not be a lot of buyers when you want to sell.
Gold bullions and bars are heavier in weight. However, they are at least equally liquid with gold coins. People like to invest in bullions and bars since less premium paid per ounce of gold.
Buy bars or bullions
Premium for smaller sizes of physical gold is bigger. The unit price of gold gets lower as the size of physical gold gets larger. Therefore try to invest in bars and bullions rather than coins.
Plan storage place in advance
If you buy gold with cash, not as a part of your retirement portfolio you can store it at your home. However, it may still be not the smartest idea to follow. If you rollover your IRA to gold-backed IRA you are not allowed to store your gold at home.
Invest money you don’t need soon
Buying physical gold you kind of buy a real estate. It should sit for at least a few years. Therefore don’t invest money you may need in the near future.
2. Gold Mining Stocks
Another type of gold investment is buying stocks of gold mining companies. With gold mining stocks your return on investment is usually going to be depending on the gold prices.
However, buying gold mining stocks you invest in stocks rather than making an actual gold investment.
There is one particular benefit of owning gold mining stocks. It pays you a dividend.
What that means you make some extra money passively. This is definitely not going to happen when you own physical gold. That said, the paid dividend is usually very small.
In my opinion, it definitely isn't worth taking the risk of owning a gold mining stock that may/may not perform well in the future.
In fact, here is the most unpleasant surprise you may have.
Gold prices may do very well while your specific mining stock doesn’t really make you any money.
That is right, gold mining companies may not perform well even maybe gold prices are constantly increasing.
However, when the gold prices plunge it is almost guaranteed your gold mining stock will lose you money. If mining gold becomes not as profitable as before, people will sell their shares. This is going to cause a major value loss in your investment.
3. Gold certificates
It is hard to carry around physical gold. Gold certificates are issued exactly to be a solution to this problem. A gold certificate is a document that proves the ownership of gold.
They were a very popular investment option during the times US dollars were backed by physical gold.
U.S. gold certificates look like banknotes and their designs have changed over the years. However, most of them had bright orange-colored backs together with a gold-colored U.S. seal on the front face.
Gold certificates are still available today to be purchased, and stored by banks.
These certificates specify the amount of gold in ounces. Because the actual dollar value fluctuates with the market. Although gold certificates look like dollar bills they are still a way of precious metal investment.
Please note that gold certificates are not a good investment option today. The certificate is as useless as a stock certificate for a bankrupt company if the company that issues the certificate goes under.
4. Gold mutual funds
Gold funds invested in “Gold Exchange Traded Funds” are called Gold Mutual Funds. Gold funds depend on assets directly related to gold prices.
Gold mutual funds can be an ideal alternative investment for investors trying to diversify. Such funds are a more convenient choice for investing in gold unlike keeping it as a physical asset.
Should you buy gold at once?
No matter what portion of your portfolio you plan to invest in gold, avoid doing that once. You can buy gold today and tomorrow again if the gold prices can go even lower.
Why lose a better buying opportunity that may be presented in the future?
Most professional investors use a technique called dollar-cost averaging. This technique suggests buying a certain fraction of planned investment today with an expectation to buy cheaper sometime later.
Obviously, every type of investment approach comes with its own drawback. The drawback here is an increase in gold prices. If gold prices increases in the future you may need to buy gold for a more expensive price.
Although dollar-cost averaging seems very unattractive for many investors it is a kind of an insurance policy to have.
Many investors try to invest at one time once they think they have found the single best price that will not be offered again. This is a big mistake to avoid.
Markets move in waves.
It is very likely for the market to drop even further or revisits the same point at least once. Unless you haven’t missed the absolute bottom or top (which is very unlikely), the market will offer better buying opportunities.
Therefore, don’t feel urged to go “all-in” once you spot a potentially lucrative investment opportunity. Buying gradually instead of buying at once will also make you feel emotionally less invested in the process.
What motivates people to invest in gold?
People invest in gold to secure the worth of their assets. We know all printed money (including the ones printed by top world countries) lose their value due to inflation. The main reason causing the loss of value in printed money is excessive printing.
Let me give you an example.
Let’s say you have $1000 in your bank account. You can buy 100 pieces of a certain item that costs $10 each.
Ten years from today, let’s say the same item will cost $12. If you have kept your assets in your bank account as dollars you wouldn’t buy the same amount of that item ten years later.
This example is valid and applies to all world currencies. However, the amount of inflation, the country's' money policy and other political factors define how aggressive the value loss in money becomes.
Inflation works for the government not for you
Although they made us believe governments exist for the people, we are nothing but taxpayers for the governments. It is at the heart of their best interest to grab our hard-earned money from our pockets.
They do it through taxes, and printing money. While your hard-earned $1000 sits in your bank account, if your government is printing money, it is doing nothing but stealing your money.
Printing money eases governments’ hands to pay debt, salaries, public services, etc. However, it harms your savings since it increases the amount of money in circulation.
As you already know if the money supply in circulation increases the value of the money decreases.
I want to make another analogy since which makes a lot of sense.
You are playing cards against someone. Although you both have started the game with 10 cards, and supposed to keep that number along with the game, your opponent secretly introduces new cards in his hand. He cheats and taps to unlimited card supply.
Then you wonder why you are the one always losing the game.
This is basically what is happening when you tie your all assets in printed money.
In other words, governments are buying the saved assets of their citizens for cheap to create an economic advantage for themselves.
Gold and other precious metals become very handy at this point. They are in limited supply and cannot be artificially multiplied overnight as some countries did for their money in the past.
We have seen in numerous countries the value of national currency lost more than 50% overnight. We call it devaluation. All countries experience devaluation of their money. Some have it mild while others are having more aggressive.
When you invest in gold, you invest in something that existed before your country was not even on the map. Gold will also be around very probably most countries disappear from the map.
It cannot be printed by any government so as a gold investor you are protecting yourself from the inflationary theft.
Governments don’t like people investing in Gold.
Today no single world currency is backed by physical gold. Although the US dollar is the most recognized currency it is backed by nothing. The government can print money any time it wants without worrying about the possible consequences of it on people’s lives.
On the other hand, gold is in limited supply. Gold can be mined from the earth. Also, gold is available almost everywhere in the world. However, gold mining is a difficult and expensive process. Mined gold is not large enough to significantly change the total gold supply.
By knowing these facts, we can say gold is a hedge against inflation. It is also a very popular asset class especially during a financial instability condition.
But why do governments don’t want their people to invest in Gold?
The reason is very simple. They cannot manipulate markets and financial situations if most people in a country heavily invest in precious metal assets rather than the local currency.
In case of a war or large scale instability, paper money may not be used to buy products or services.
Let me explain quickly why.
During the hard times governments print money. They do it because they want to buy weapons, increase food storages, and maintain the economy. Printed money increases inflation.
If a currency is bleeding very hard due to high inflation, people naturally will not want to accept the money printed by the government.
Even if they would accept it, they would probably not hold into that for long. Eventually all cash will flow into gold and other precious metals as you can expect it.
What that means, the government will have less control over the finances since not being able to comfortably steal from their citizens. This is the entire idea of why gold investment works.
This is why wealthy people diversify their portfolio by investing in gold and other precious metals.
Gold is the best asset to diversify a portfolio
Putting all the eggs in the same basket is very risky. You want to diversify your assets by including different asset classes to your portfolio. A well-balanced portfolio will prevent your assets against the inflationary loss.
What are the other asset classes you can invest?
You can invest in stocks, bonds, mutual funds, and even cryptocurrencies. However a portfolio that lacks precious metals (primarily gold) is very open to market crashes and other unexpected surprises.
When you buy stocks, you invest in a company’s total worth. The company’s financial condition and profitability heavily depends on the economy of that country. When the economy goes bad, stocks will lose their value together with your other cash assets.
You should invest contrarian assets in your portfolio that can move against the current economic condition. Gold does that successfully. It is recognized as the best type of asset to hedge against a losing economy, or a large scale financial instability.
Constant increase in debt
Another big reason people invest in gold is the debt out of control. Private debt and US national debt is only going to skyrocket journey year after year. Most experts agree on the financial market today more vulnerable today even than the pre-2008 period. People don't want their assets to melt due to financial risks the market brings.
When to Invest in Gold?
Once you have decided to include gold in your portfolio, the next question comes to mind.
When is the best time to invest in gold?
There is no best time to invest in gold. No one knows if a specific asset will be more or less valuable tomorrow than today.
Investment gurus telling you when you should or should not invest in gold are just making estimations based upon their biased opinions. I don’t know how gold will perform in the future, there is really no one who can help you with that.
If someone is very certain about where the gold prices will be in the future, stay away from that guy. The more certain he is, the more likely he will fail with his estimations.
Markets are not the environments that work with common logic. They have full of surprises. The best thing we can do is to make educated estimations using certain techniques.
What are those techniques?
You can use a combination of Fundamental and Technical Analysis to spot a good investment time for the gold and other markets.
You don’t need to find the top and bottom when you invest in anything. It is a useless habit that makes investors lose a lot of money. In reality, most money is made in the middle of a market move.
If you have done your homework you can tell if you could find a good entry point. Also, a good entry point doesn’t translate an ideal entry point. It will probably not be the top or the bottom.
But hey, if you could by chance buy at the bottom or sell at the top you are in great luck.
Most investors don't have enough financial literacy. They also make investments with unrealistic expectations. They buy gold from a certain price and see a price change of $20 and they panic.
Because once they buy gold, they didn't have an investment plan. Before investing in gold you should clearly define what is the point you want to sell your gold assets.
You should have a clear reason to buy and sell. If you fail to plan, as it is said, you literally set yourself to fail.
What is the best time to invest in gold?
If you have decided to invest in gold, the next question comes to mind when to do it.
Please keep in mind, every kind of investment has a certain degree of risk.
The people who can grow their money consistently month after month are not the ones who time the market accurately. They are the ones that make smart risk/reward analysis so that they can keep their losses at the minimum.
What is the right time to convert your cash assets into gold so that you keep your risks at the minimum?
Learn to manage a portfolio
Gold is an important asset class to invest in. However, investing a large portion of your money in one type of asset only will expose you to significant risks. We never have control over how the markets will behave.
You may think Gold prices are at an overbought stage or extremely high so that the gold prices should drop sometime soon right?
Buying gold at a 3 year highest price point looks very expensive to many investors. However, gold prices can keep growing another 3 years and maybe even 6 years.
Markets can go unreasonable longer than you stay solvent.
Fundamental analysis is done by considering the world’s political situation, countries’ relationships, central bank monetary policies, and other major national and international factors that may affect the price change.
Technical analysis is done purely by evaluating earlier performance of an investment vehicle to estimate where it can be in the future.
Most investment advisors use some combination of these 2 types of analysis to create reports estimating the future performance of the investment vehicle.
Although doing analysis before making any type of investment is important, it is nothing but an educated estimation.
Let’s talk about the Fundamental Analysis a little bit. It is probably the biggest junk that can potentially kill any type of investment decision.
Think about it for a second. If you read news and make your investment decisions based upon that you will likely to lose most of the time. By the time you have learned news, they are already old. Because everyone else is reading the same news and acting upon them.
Let’s be honest no one knows what kind of declaration will FED make on a certain date or if China will decide to open new trade zones that may affect your investment. Unless you are an insider (which is not something legal) you have no chance to learn this information.
Here is something even more beautiful. Even if you knew that the FED would declare printing more money before everyone else, you can never accurately know how it would affect the markets.
There are millions of occurrence markets that didn't act or act very poorly upon a long expected news release. Considering multiple events are happening across the world simultaneously you have no chance to know where gold prices will be tomorrow or 3 months from today.
If someone tells you that you should invest in something because the government is doing this and that, stay away from that guy and the advice. They don’t know what they are talking about and they act upon the old information.
Now it is time to discuss the technical analysis. Technical analysis is based on creating models using the previous market movements. There are thousands of technical analysis methods implemented to analysis markets. If technical analysis implemented properly can provide reasonable results.
However, considering most hedge funds lose money technical analysis or the complexity of the used mathematical model has nothing to do with the success of the investment. You can work with the most skilled financial specialists and still lose money.
Most technical analysis systems are based on resistance or support lines, market overbought oversold points or they are trend based systems.
The all used technical analysis systems have their own plus and minus. If you have caught a consistently growing market and you have invested at the beginning of the new trend you can make a lot of money. Similarly, if you are following a trend based system and get caught in a choppy market you will lose a lot of money.
Information I have provided above in fact mostly related to traders rather than investors. However, if you knew nothing when and how to invest in gold you needed that introduction.
Gold investor vs Gold Trader
The difference between investing and trading is the time period a position is kept open. If you are buying gold with a plan to sell in a few months or less, you are not investing in gold but rather trading it.
Trading gold requires having a different skill set and it is not the discussion of this post. Unless you have years of experience in the markets you will fail in that. Most traders lose money. They lose since they cannot read the markets and cannot establish a viable risk management system.
Trading gold is something most of us should avoid.
We want to buy gold with the expectation to hold our position for a longer period of time. The charts you will need to look at our daily and weekly gold price charts. If you buy gold using a chart with a time period less than a day (like 4 hours or 8 hours) you are significantly risking your assets to sudden market movements.
The higher the time frame you move the more meaningful market movements become. Also buying less often means executing fewer transactions and paying fewer commissions.
Gold traders are the ones who make a profit from short and medium-term market movements. The trading period (holding to an open position) can be a day to a few months.
Gold investors on the other hand don't focus short and medium-term market movements. If you buy gold to sell 2 months from now on chances are high you will lose money if you do it repeatedly. Unless you are equipped with phenomenal trading skills with long years of trading experience short term buying and selling will lose you money.
The longer the time frame you buy and keep your position more reasonable results and less surprises you may expect. Expecting where gold prices will go on a yearly chart is easier than a daily chart. Hence, it is important to have a long term perspective with your investment decision.
I am talking about at least a year or even up to decade holding your priorly determined portion of your portfolio in gold. This is the type of investment if implemented in a well-diversified portfolio can bring good results.
Simple gold investment strategies
In this part I am going to introduce you to a few simple to use gold investment strategies. As I have said earlier, investing can be made really complicated. However, I want to make it simple for everyone.
There are thousands of investment approaches. Don’t expect this post to teach you all of them. However, I am going to show you a few you can implement yourself to give more educated decisions.
Strategy 1: Moving average crossovers
If you have absolutely zero knowledge about the markets this strategy can save you from being a losing investor.
Moving average crossovers can be a viable strategy if you can spot a trending market. There are many different types of moving averages. However, I do mention here SMA (Simple moving average).
It is a line plotted on charts showing the average price in a last certain period of time.
SMA 50 & SMA 200 Crossover
We specifically want to use SMA 50 & SMA 200 crossover to enter and exit the gold market. Here is why we want to use these moving averages over other types of moving averages with a different period.
They are the most respected moving averages by the markets. Most markets respect these lines and prices tend to follow and bounce from these moving averages quite often.
If you invest in gold when SMA 50 crosses over SMA 200 (with the golden cross) you may get into a bull market very early.
Drawback of the strategy
Moving average crossover strategy works well for the trending markets. If you buy during a consolidation period, you may lose money due to choppy market conditions.
As I have emphasized earlier no matter you trade or invest, you should always have an exit plan. You never want to keep a losing investment forever with the hope that it will recover.
SMA crossover is a very basic strategy and can help investors eliminate most bad investments. However, I wouldn’t recommend using this strategy by itself.
Strategy 2: Highest Price, RSI, Moving Average Strategy
This strategy is a little more sophisticated than the first one we have discussed. It is for those who want to buy gold and hold for a long time before selling.
To invest in gold, we will need 3 conditions to be met:
Condition #1: The price of gold should be at least %50 less than all-time high gold prices.
When gold has had its highest price per ounce ever?
It was in August 2011 when gold prices hit an all-time high of $1,900/oz.
If gold prices are not %50 off from it's all time high I wouldn’t invest in it.
Condition #2: RSI should be less than 40.
RSI is an indicator that shows overbought/oversold conditions of the market.
Is it something %100 reliable?
Absolutely not. It is just an indicator that saves us from doing tedious calculations. By the time I want to invest in gold, RSI should be less than 40. Else I would wait for that to happen.
Condition #3: Current gold price should be under SMA 50.
If gold prices under SMA 50 it is a good signal to have. If the price is even under SMA 200, that is even better.
Remember you should be investing in gold when everybody else is selling gold. Similarly, you should be selling gold when everybody is greedy to sell their gold.
What is the enemy of being a profitable gold investor?
Buying at or around historical highs and selling at or around historical lows.
Buying/selling against the trend. You should not row against the stream. You don’t need to be a trend trader to respect this rule. It applies to all markets and all investors.
Beign fearful or greedy. Ideally, you should buy when everyone else is selling, and sell when everyone is buying. Only a few percents of people make money consistently from the markets. As an investor you should align your investments with them.
Don’t place market buy/sell orders. Specify your entry point and let the market come to that point. Buying from the market price is for those who don’t have a plan.
Have a stop loss and exit plan. You don’t want to stuck in a losing position to lose even more.
Stay away from the advice on mainstream media or has no calculation behind.
No matter how long I write there is no way to cover everything about gold investment. I have tried my best to give you the essential information to get you started investing in gold. Don't trust my word, in fact don't trust the word of anyone investing your money.
You would get less disappointed with the negative results of a bad decision if you have made that decision yourself. Therefore, be self-reliant and always do your own due diligence.
It is useful to check what other people talk about the market. It is always beneficial to digest everyone's opinion. However, make your decisions according to what your analysis and investment plan tells you to do.
Develop an investment system that can eliminate your feelings, your biased opinion into decision making process as much as possible.
Always test your investment plan again and again. Once you are sure, you have a solid plan start small. You can never do wrong by investing small. This is more true especially when you get started with a new or unproven plan.
Finally, never invest more than you can emotionally handle to lose. All investments carry certain risk. Your goal is to calculate that risk, and build a solid risk/reward management system.
I wish you good luck, and profitable investments.