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Gold drop spells purchase opportunity

Gold has been hammered. It’s the Fed’s fault.

When the Federal Reserve System raised interest rates by a quarter point yesterday and indicated it would likely impose three more rate hikes in 2017, gold reacted very negatively.

It is down by more than $30 since yesterday’s close of $1,161.30.

It is trading at $1,128.30.

At these prices, gold has dropped by $237.10 since the high in July of $1,365.40, according to the Kitco website.

At the moment, an ounce of gold is valued $68 higher than it was at the final 2015 close of $1,060.30.

This leaves it up by 6.4 percent on the year.

There are many factors besides interest rates that affect the price of gold, but it pays to remember that it was rising interest rates that killed the bull market in gold after its 1980 peak.

It will pay to keep an eye on the Fed.

That also means gold owners should look to first principles.

Why do they own the precious metal in the first place?

Ownership should be based on sound diversification of assets.

No more than 10 percent of investable funds should be in it.

When prices fall and other assets rise, it puts percentages out of whack.

A rebalancing plan at year end will likely encourage the sale of some appreciated stock assets and the purchase of some gold.

This is because at the moment stocks have appreciated more than gold.

Not all investors own the same assets, so this is only a very general statement.

The other thing to keep in mind is never lose sight of the long term.

If gold is a permanent part of your investments, don’t worry about short-term fluctuations.

Speculators worry about the short term.

At this point, if the speculators did not sell out in July, and still own the metal, they have given up nearly all of the year’s gains.

If you are one of those who will need to look to buy gold to rebalance your holdings, buy the popularly traded bullion coins from a trusted source, take delivery of them and store them safely.

But watch the premiums.

The point is to get the most gold for your buck, so choose the coins with the lowest markup from melt value.

Do your homework.

Buzz blogger Dave Harper has twice won the Numismatic Literary Guild Award for Best Blog and is editor of the weekly newspaper "Numismatic News."

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