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Time to Buy Gold!

Written By Geoffrey Pike

Posted June 15, 2015

gizoldInvestors who bought gold in 2000 have enjoyed nice gains over the last 15 years. Back then, the price was less than $300 per ounce. It went all the way up above $1,900 per ounce in August 2011 before coming back down.

Over the last few years, the U.S. dollar price of gold has been hovering around the $1,200 mark. While gold has certainly taken a big hit over the last few years, it is not as bad as it may seem over the last couple of years considering the strength of the U.S. dollar.

Of course, this is of little solace to gold investors in the United States, especially if you weren’t planning to spend your money in a foreign country. Most American gold investors just see paper losses from almost 4 years ago.

Now it looks as though coin collectors, and those who invest in physical gold, are capitulating. As recently reported by Bloomberg, the owner of a coin shop in New York is saying that his sales fell by 35 percent in the month of May. Meanwhile, purchases of American Gold Eagles from the U.S. Mint saw their weakest month in eight years.

The gold coin enthusiasts are just not coming out strongly to buy right now. To be sure, this is a small fraction of the population in the first place, particularly in the United States. But why has this group lost interest in buying?

One simple possibility is that those interested in gold have already bought. In other words, if you are a gold enthusiast, for whatever reasons, you have already probably loaded up on gold. If you didn’t do it before the great bull run in the 2000’s, then you have probably done it in the last couple of years after it came way down from its highs.

The price has not gone significantly down to present a good buying opportunity that didn’t already exist. And the price has not moved significantly upwards to make people optimistic that a new bull market has begun.

What Are Some Other Possibilities?

The lack of enthusiasm from coin collectors may just be a reflection of the current state of gold. It’s hard to be enthusiastic about something that has gone nowhere in price in the last couple of years.

But what else could be going on here?

One possibility is that we are about to enter into a new recession. Personally, I find that people out there are not that optimistic about the economy, despite what may be reported in the media.

People are tight on money. I can hear statistics all day long about job growth and increasing wages, but the general consensus out there is that people are tight on money. They are struggling to keep up with rising health insurance premiums and other major expenses.

In times of tight money, gold is not likely to perform well. In this type of environment, cash really is king. People want money to pay their bills, pay down debt, and save for a rainy day. Some might even be willing to sell some of their gold for this purpose. It certainly makes for fewer buyers.

While the Federal Reserve exploded the monetary base from 2008 to 2014, it is currently in tight money mode. Some kind of an economic downturn would not be surprising at this point, and perhaps the lack of gold buyers in the physical market in the United States is just a sign of this.

There is also another possibility and that is that we are seeing the final days of the bear market sentiment in gold.

As already stated, gold has been a downer for almost 4 years. It has been a boring investment for the last 2 years, going virtually nowhere. Meanwhile, gold mining stocks have been absolutely hammered.

Maybe this is the final stage of this down market. Contrarians say that the best time to buy is when nobody else wants to. Actually, even many mainstream investors will admit that you should buy when nobody else wants to buy and you should sell when nobody else wants to sell. While this is a generalization and a bit of cliché now, it’s still decent advice at times.

You can’t find more of a bottom than when you see the most dedicated gold investors slowing down their buying. If coin collectors aren’t interested anymore, then perhaps we are now ready for a renewed bull market in gold.

Maybe it’s a little early. Maybe we will see an economic downturn before we see a new bull market in gold. But if you don’t already have this historic metal as part of your investment portfolio, now is as good a time as you will find. If you don’t buy now, will you definitely buy if it goes below $1,100 per ounce, if that even happens?

It’s almost impossible to buy at the exact low point in any market. The coin collectors are not buying. This may be a sign that you should. And you can keep some extra cash on the sidelines in case a better buying opportunity should appear after an economic downturn.