You have probably heard the adage “buy low, sell high”. This is a timeless truth and a brilliant piece of advice in many industries, not least precious metal investing. Of course, you’ve probably also heard the adage “easier said than done”, which applies in this case, because buying low and selling high is not a simple matter. However, there are some simple indicators to keep an eye on which will let you know when the time is right:
- Buy when the Dow Jones gold price ratio is between 1 and 2. When this article was first researched the ratio was 12,492/1,280 = 9.8, whilst its historic peak, in 2001, was 40.3. When this ratio gets back to between 1 and 2, gold will be fairly evaluated.
- Sell gold when the gold to crude oil ratio rises to around 30 to 1. For example, if crude oil is priced at $300 per barrel and gold is priced at $9,000, you have your 30 to 1 ratio. In 1980 the peak ratio was about 25 to 1.
- Watch the government to know when to sell. When inflationary policies cease, that will be a good time to sell your gold. Unfortunately — or fortunately, depending on how you look at it — this is not going to happen anytime soon.
- Look at the ratio. Historically, the price of gold and silver has maintained a 16:1 ratio. In other words, if the price of gold was $16 an ounce, then the price of silver would be $1 an ounce. It’s about 55:1 right now. Investors who trade gold bullion and silver bullion scrutinize the gold-to-silver ratio as a signal for the right time to buy or sell.
- Buy when the “blood is running in the streets,” and sell when everyone else wants to buy. Use ratios from other markets as objective measures to indicate probable price extremes.
- Sell some of your gold when you can use it to pay off the entire mortgage on your house.
- Look at your situation from a personal-budget perspective rather from an investing one. Even if the market conditions aren’t optimal, if you need quick cash and can part with your gold, it may be time to sell. Again, this approach will typically ignore market conditions, so the important things to consider in this situation are the long-term effects a quick sale might have on your finances. Will you be able to make gains after this sale? Will it help you get back on your feet?
- Too many times, investors hesitate unnecessarily, simply because they think conditions might improve further. If conditions are ripe for selling, sell. It’s as simple as that. If you can make a big profit now, don’t wait for a bigger profit tomorrow, because you might end up with nothing.
- Remove emotions from the equation and ask yourself what you would do from a strictly financial perspective. This way you can gain new insights and reach conclusions that you wouldn’t have reached otherwise. If you can avoid it, try not to sell gold out of desperation or fear. Instead, educate yourself so you can make better and more informed decisions.