It doesn’t take much to get the gold commentators excited these days.
We have vaulted over $1,300 again for the umpteenth time this year.
Has a new up trend begun? I don’t know.
I think it is premature to even attempt to guess.
However if your object is to try to twist a reluctant gold buyer to jump in now, I guess heralding the beginning of a new up trend is this week’s method of choice.
As for me, I think it is important to watch what happens with the sales of gold American Eagles and Buffalo bullion coins. These will have to begin rising significantly before we can say with any certainty that a new gold up trend has begun.
But even with bullion coins, there have been short-term sales blips higher that meant nothing for the long-term.
I would much rather watch the actions of coin collectors. For them, increases in bullion prices are happy extras applied to coins that they purchased to build their collections.
Long-term forecasts for a gold up trend can still be right yet you can lose a lot of money in the short term.
After the peaks in 1974, 1980 and 2011 lots of money was lost on the swings lower.
It does not matter in the short term whether the U.S. dollar is a fiat currency. It has been so since 1968 when the last 25-percent gold cover requirement was eliminated for the issuance of new money.
Gold is higher priced now than it was then, so if you could wait 46 years and simply hold gold, you did well. But what if you needed money in 1976 after gold had fallen by half, or in March of 1980 after a more than 40 percent fall from the peak or right now after a one-third drop from the roughly $1,900 peak of 2011?
Knowing the U.S. dollar is fiat does not have an influence.
Worse, what if you had bought gold at the top in 1974 of nearly $200 and then needed money in 2001 when the market bottomed just above $250? Figuring in the buying and selling commissions, you wouldn’t have had much to show for 27 years.
By collecting, you are limiting yourself to committing only long-term money and your regular purchases mean that if at some point you happen to buy at a peak level, all of your other purchases will help to average this cost lower and give you a greater chance of showing a profit.
In the long run when gold will indeed be higher than $1,300, you will come out better.
However, because you don’t know when this long-term higher price will arrive, 2015, 2025 or 2035, it is best to enjoy the collecting along the way.
Buzz blogger Dave Harper is winner of the 2013 Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper "Numismatic News."