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Old adage seems to apply to gold

There is an old adage on Wall Street that you should buy the rumor and sell the fact (news).

What this means is that by the time official word about something comes out, everybody who is conceivably interested in making the investment is already in, leaving little upside.

The same works in reverse for bad news, sell the rumor and buy the news. By the time the drip, drip, drip of rumored potential bad news has shredded the value of a stock, release of the actual bad news often can mark a low and investors start looking at recovery scenarios.

I thought of this when gold slid below $1,100 again on Friday and closed at $1,087.60 a troy ounce.

This puts the metal back within a few dollars of its lowest close of the year reached in early August – not good news for the many buyers of bullion coins who piled into the market starting in July.

In fact, anyone who has purchased gold bullion coins this year is sitting on a loss.

The drip, drip, drip of bad news is basically the daily speculation about whether the Federal Reserve board of governors will move interest rates higher at the next meeting, which will be held Dec. 15-16.

The more it looks like interest rates will rise, the worse it looks for gold because rising interest rates make it more costly to own gold, or they lift returns on investment alternatives to gold that make them look more attractive.

Rising interest rates also imply a stronger economy, kicking the support out from under gold as a hedge against economic bad news.

If you are a collector, it doesn’t really matter on any given day where gold is unless you are ready to close a deal on a coin whose value is influenced by the value of the precious metal.

Collectors have the luxury of looking at the long term of finishing a collection and they get the benefit of dollar cost averaging, meaning that daily price fluctuations even out over time.

However, the Mint often sees a tick higher in failed and canceled orders and returns for its collectibles when metals drop sharply as buyers do all they can to get out of a bad deal.

If you are a collector but can’t resist a speculation in gold from time to time, the present environment seems to be a classic case of waiting for a rumor (the interest rate rise) to become fact. When it does, a re-evalution would be in order.

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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