Powayseller congrats on the gain. I recommend Zeal Intelligence if you want to understand the whys behind rise in gold & other commodities(http://www.zealllc.com/essays.htm). Wondeful thing about this website is these essays are free and easy to read, and the author does use a mix of both fundamentals (which I consider anecdotal at best) and technicals (love those charts). Specifically for gold, check out http://www.zealllc.com/2006/cpigold.htm, and for commodities in general http://www.zealllc.com/2006/21bull.htm.
To determine when to buy / hold / sell, the author uses what he calls “relativity measures”, essentially dividing an asset’s current price by its 200 day moving average and since the gold bull started in ’01 this number has mostly bounced between 0.99 and 1.14. Key thing is while it is not a sure win, your probability of success will be enhanced if you buy when this number gets near 0.99 and get out when it gets near 1.14. Now, gold’s current price is approx at 1.26 times its 200 dma. Therefore if you believe that this band (0.99 and 1.14) will continue to hold the answer to your question is sell now.
However, life is of course not that easy, pls do appreciate one fact, and that’s for this measure to go down to 0.99 or a more reasonable level, it doesn’t necessarily require gold price to drop. For example, if gold simply bounces around within a narrow band of +/- 5% for a number of months (which is what it’s doing so far since it hit the high of $645 last week), its 200 dma will eventually catch up to the current price for the relativity measure to get back towards 0.99. So the catch is if you sell now, you may not be able to get back in at a better price. And human psychology may tell you to wait for this “better price” and you end up watching gold go to $700, $800 … and you’ll hate yourself for that 🙂
The danger of selling too early was well demonstrated in the late ’90s. Remember when Alan Greenspan warned us about irrational exuberance back in … I think ’96 ? Well he was right but his timing was too early. Imagine if you got out then you would have missed some hefty stock market gains of the late 90s.
There’s a trading strategy that may alleviate that and that’s the use of trailing stops. For example, you bought gold at $600. Let’s say your comfort zone is a max loss of 20%. Then your 1st trailing stop is set at $600 – 20% or $480. Then as gold price moves up your trailing stop gets adjusted upward to always equal to -20% of the highest price but rule is once a trailing stop is set you never adjust it downward. Gold last peaked at $645 so your trailing stop should now be at $645 – 20% or around $520. From this point on, if gold drops down to $520 you sell but if it resumes its uptrend after this round of consolidation you keep moving your trailing stop upward. This will allow your profits to run … especially in times like these when arguably fundamentals have been thrown out the door albeit temporarily but with war fear there’s no telling how high it could go (what if israel does a preemptive strike on iran?). There are of course many other trading strategies but this is one I found that probably offers a good mix of allowing you to ride a bull market as much as possible without incurring too much risk.
