PS,
I think the only chart you can use is a plot of gold, inflation adjusted in today’s dollars, using a reasonable rate of inflation (not some ridiculous 2% CPI number). There you will see that the window for gold is $300-$2400, and there is no reason to believe that gold should trade much outside this window, since it hasn’t for 3000 years. Of course, this window will move up with inflation, so in 10 years it could be $600-$4800. Within the window gold will trade according to fear, investors expectations, loss of faith in currency, etc. So if investors will sell everything else, the money might go into gold, and therefore prices will gravitate towards the upper end. The only way money won’t flow anywhere is if government lets our huge credit bubble collapse without printing money – highly unlikely. Even then, gold can move to the upper end of the window, but the window will move down.
Will gold go to $3000 in between and then crash again to $600? Who knows, why not. But sometimes you have to know what is cheap and what isn’t. Since gold is $650, it is closer to the lower end than to the higher end, and chances are still in your favor. If gold goes to $1500 the reverse is true, and I wouldn’t rush out to buy it. I might sell some and hopefully find better investments then.
It’s like a 5 year old Toyota, that you can get for $2000-$8000. I would buy it for $3000, and I wouldn’t worry that it can go to $2000. If you are afraid of things like that, you will never make money in investing.
So to summarize, these are the basic beliefs that you must have when buying gold:
-That gold will trade in the same range it has been for hundreds of years.
-That inflation is real, and that interest rates are not high enough to offset your loss of purchasing power. (including protection in a crisis)
-That other asset classes are overpriced and that this won’t last forever.
-That you can only buy it when it is realtively cheap or not at all. After the price moves up and everyone rushes into gold, the risk/reward will not be as favorable anymore as it is now.
If you don’t share these basic beliefs, then don’t buy it. Nobody will ever be able to offer you a guarantee since nobody can predict the future.
