Market Wrap – Is Buying Gold A Solid Defensive Strategy?


Market Wrap – Is Buying Gold A Solid Defensive Strategy?

By Dale Gillham, Chief Analyst at Wealth Within

Mark Twain’s novel, The American Claimant, read ‘there’s gold in them thar hills’! But is now the time to strike it rich?

Records from the gold rushes of the 1800’s indicate that most who went to the gold fields to get rich didn’t. The people who made the most money weren’t the miners but the folk selling the equipment to find it. So think twice when you read about opportunities to get rich quick.

Historically, buying gold is seen as a defensive strategy in times of escalating conflicts, when people are fearful, but as with any investment, there are risks. Just because the price of gold is currently rising, tensions are high between the US and North Korea, and you may be concerned about where to put your money, this doesn’t mean you should rush out and buy gold.

Just as many of the speculators in the 1800’s lost their shirts trying to get rich, so too will people who buy gold at the wrong time and without a proper plan.

There are lower and higher risk times to buy. Currently, the probability that the price of gold will rise is higher than a fall and you may believe that it’s easy to buy, however, knowing when to sell is equally as important. Remember, someone who still owns gold after purchasing it at its all-time high price in August 2011 will be sitting on a substantial loss.

To really have a defensive strategy, you must know the answers to the following five questions:

  1. Is this a lower risk time to buy?
  2. How much do I stand to make?
  3. How much am I willing to risk?
  4. At what price will I sell if it falls below my buy price?
  5. How will I sell if in profit?

What do we expect in the market? (8 September 2017)

The Australian share market is almost ‘boring’ to investors as it trundles sideways, with the market having oscillated around 5780 points since June 2017. This week the All Ordinaries Index has traded between 5727 point and 5780 points.

Short term traders with the knowledge to profit from a move in either direction will make gains. But it’s important to be nimble as turns are likely to occur quickly.

Australian company profits, across the broader market, excluding resources, were in single digits, this reporting season, which reflects what I’ve mentioned previously, that the market is in an ‘improving earnings’ phase. In summary, 67 per cent of Australian companies reported an increase in profits compared to the prior year.

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