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Are You Buying Gold?

As you may or may not know, gold saw its largest losses in over thirty years Monday. The price dropped by nearly 10 percent in a single day to levels not seen in 26 months. The nearly $135 drop was unprecedented. So, does this mark a bear market for gold or a huge buying opportunity?

Across Asia, where owning physical gold is considered a very wise thing to do, buyers flooded gold shops Tuesday. In India, it was reported that shops were actually selling out of gold. Here in Thailand hundreds of buyers crowded shops all over Chinatown to buy gold.

All the physical buying across Asia served to prop prices up Tuesday and gold did recover over $20 an ounce. However, it seems to me that when people are rushing out like this to buy gold (or ANY asset), that a bubble or mania is in the making. That doesn’t mean that gold can’t go higher, and it very well may in the short to medium term, but the selling, which was primarily technically related, and subsequent buying mania makes it look to me as if gold is in fact overbought and ready for a correction at the least if not a full blown bear market.

I know that owning physical gold isn’t as popular in the U.S., Canada and Europe as it is in Asia, so I’m guessing that most of you haven’t bothered to buy any gold. To be honest neither have I. First of all I don’t have the extra cash laying about to invest in gold and secondly I believe that the possibility for further losses in the near term still exist. While the selling Monday was called a panic, in truth the chart actually shows a somewhat orderly market at key psychological levels. Since gold has already been weak over the past several months I believe that it could test the next resistance levels at $1250 before moving higher. And if it breaks $1250 the next serious resistance is at $1000 and then $800.

Investors have shown increasing appetite for risk and if this trend continues gold is almost certain to decline in price. Of course only time will tell and if you are interested in purchasing gold I recommend you keep a close eye on the market and see what it is telling you.

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