Everybody knows gold has been going up, right?
You would think so. However, I had an e-mail from Pat Heller an online writer for our e-newsletter and he mentioned that some dealers were taken unawares by a 10 percent move higher in the price of Mint State gold $20 coins as they were setting up at the Texas Numismatic Association show.
That is the definition of volatility – when even professionals are taken by surprise.
With Europeans rushing into the gold market because the euro has been sinking, it would seem that this becomes a selling point for more American investors to jump in. They bid up the price of Mint State U.S. gold in consequence.
Is it rational to buy fairly common gold coins and pay high premiums just because they are Mint State?
Rational is probably not the right word. But it does happen a lot.
Buyers pay premiums over bullion value for common coins in strong markets that disappear in weak markets. This has happened time and again.
That’s why it is so necessary to stay on your toes if you want to make moves in this area.
Traders love volatile markets because they can make money on the price swings. Investors who buy at market low points and sell at high points over long periods of time make money, too.
Buyers who stampede into things on an adrenalin rush generated by rapidly rising prices can easily be whipsawed with large losses. The rush turns into buyer’s remorse.
So be a long term investor, or trade day to day, but don’t be an investor who acts only when gold generates a new headline.