Gold tops $1,109, time to sell?

One approach to the gold market is to just hold your position and ride the market ups and downs. It is always tempting to sell out at what appears to be a market top but then until the market enters a parabolic spike this is not going to be the top.

With the Dow Jones completing a double-top formation at 10,000 points, exactly the figure predicted earlier this year for a market top on this website, the temptation is to take profits on gold too.

Recent precedent

Last autumn we saw how gold can be dragged down with a falling stock market, and that is a lesson best learned rather than ignored. Certainly lightening up on gold producer and junior shares looks wise as their leverage also works to the downside.

However, it looks as though any retrenchment by gold will be quick and shallow. There is clearly enormous investor buying interest, and that should support prices above the previous all-time high of $1,030 or at least $1,000.

Nimble traders might be able to make something out of it. The risk for less active investors is that they are away from the screen on the day that counts, and miss the opportunity.

A better strategy might be to sell on confirmation of a downtrend in the Dow and then switch into gold stocks when the Dow reaches a lower level. The bounce back would then be turbo-charged by gold equities in place of gold bullion, and it must be said the downside to this trade looks limited.

Buy and hold tightly

Over the next few years precious metals are a hold and accumulate more on weakness, so it is arguable that jumping out now might be an error, and there is always the chance that the Dow powers on up another thousand or two points and gold goes ballistic.

If you are shorting the Dow at this point then you could also consider precious metals as your best hedge against getting the market wrong. Humility expressed in bullion can pay dividends!