Here’s the Secret to Timing Gold Perfectly (and Playing It Profitably)

The U.S. government holds 261.5 million ounces of gold.

Now, a government holding gold is not all that unusual. Lots of them do, all over the world.

This is: Uncle Sam doesn’t mark to market!

It just carries the stuff at the nominal value of $42 an ounce, which is about 3% of its market value.

So it pretends that it’s not worth much. The U.S. Federal Reserve shows its gold holdings are “worth” $11 billion – enough to cover any hiccups that might arise from its once-radioactive, still-vulnerable mortgage-backed securities.

But at current market prices, the U.S. government’s gold reserve is worth close to 30 times as much as the books show - about $329.5 billion.

I guess that’s the government’s “insurance policy.”

Me? I see gold not so much as an insurance policy but as a store of value, similar to any other investment. We know it can’t go bankrupt. It’s nobody’s liability, but it sure does fluctuate in price.

In that respect, gold is just like any speculative investment. There’s potential reward, and there’s risk.

Timing is everything. And gold timing should not be a mystery.

Here’s how it’s done...

You Can Be Your Own Master Market “Technician”

Of course, hindsight is always 20/20, but my job is to analyze current conditions and decide whether the timing is right to buy, sell, or hold gold. I analyze it both as a potential long-term investment as well as a shorter-term trading vehicle.

With any matter of timing, including for gold, I rely on technical analysis, using the exact same indicators that you often see on stock charts: moving averages and momentum oscillators.

Now, here’s the thing. I’ve got a secret to let you in on...

It doesn’t matter what type of indicators you use - although I prefer price indicators to volume indicators.

The secret is that the time frame of the indicators must be in harmony with the time frame of your investment horizon, your desired holding period, and market cycles.

All investments move in cycles. They’re irregular, but they have tendencies toward certain time frames.

As a technical analyst, the trick is to tune the indicators to the time frame - or time frames - you want to isolate.

To get the entire picture, I like to use indicators that depict three time frames:

  • The very long-term trend, which some people call the “secular trend”;
  • The major cycles, which usually last anywhere from three to six years low to low; and
  • The big-swing cycles, which may run four months to a year low to low.

You’ll want to use something like this if you’re doing your own charting, or you can use mine. I live and breathe charts for gold, stocks, you name it – and you’ll get lots of them in Lee Adler’s Sure Money.

We can drill down to even shorter time frames, too.
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With the tools we have today, we can zoom in to time frames of a few minutes, or even a few ticks. But those are for professional traders who sit in front of their computer screens watching the markets change in real time.

You probably want to make some profit and live your life, you know, away from a computer screen and trading desk.

That’s why we’re interested in the bigger swings, where we check in once a week or so and still profit. We can take advantage of these big swings without devoting an inordinate amount of time to tracking everything tick by tick and without reacting to the often random twists and turns of news-noise-driven markets.

So let’s go back to the beginning of the great 2001-2011 bull market in gold. The metal made a low in July 1999. It then had a big rally, but gradually sank over the next 18 months to revisit the July 1999 low in February-March 2001.

We call such a revisit a “test of the low.” The test was successful.

The price held at the 1999 low, creating a double bottom 21 months apart. That’s an unusually long interval for a double bottom.

Most importantly, it was a sign that something big might be up after a 20-year secular bear market.


GoldAnd, yes, something big was up, as we now know.

Here’s How to Play This Gold Picture

Fast-forward nine years, and gold was trading up nearly 700% from those lows. After hitting $1,924 an ounce, gold corrected to $1,524 an ounce in December 2011. It tested that level and held six months later, but the rally that ensued failed to get close to the September high of $1,924.

When the market subsequently broke the double bottom near $1,525, it became clear that gold was in another bear market.

So, the “$2,000 question” is whether gold is still in a bear market today.

My answer is no. Here’s why.

Below is a chart of the price of gold with a couple of technical indicators added. On the price portion of the chart, I have added a 36-month moving average. Notice near the beginning of this chart that crossing, testing, and then pulling away from that average in early 2002 was a bull market signal.


how to time gold pricesAt the bottom of the chart is an indicator of price momentum. It’s a 24-month rate-of-change indicator. It measures the speed of a move both up and down over a two-year rolling period. The object is to filter out moves shorter than two years, showing only waves of approximately four years or longer.

The red line overlay is the one-year moving average of that momentum indicator. It smooths the swings and gives better visibility to the cycle.

Notice the pattern in the momentum indicator of higher highs and lows, which developed from the lowest low in mid-1998. Note also that the price lows in 1999 and 2001 were matched with higher lows in momentum. Technicians call this a “positive divergence.”

Finally, early in 2002, the momentum indicator made a new high above the zero line. This showed that long-term momentum had reversed from negative to positive, confirming the “Buy” signal in the price indicator.

Today’s setup is much like the setup of June 2001, when momentum first crossed above zero after a long bear market.

At that time, the price of gold was flirting with breaking the two-year moving average. It wasn’t all the way there, but higher lows in momentum over the preceding 34 months were a good sign. Today we see a similar series of higher lows in momentum, also over 34 months.

There’s another similarity...

The 1999 to 2001 period marked the top of a raging, long-term bull market. It ended with the bubble in tech stocks – the so-called “dot-com crash.” The current period has been preceded by a similarly strong bull market and a similar bubble in some, but not all, tech stocks.

As George Santayana famously said, “Those who do not remember the past are condemned to repeat it.” Technical analysis helps us to revisit the past so that we can remember it and learn lessons that may help us to profit from those memories. In that regard, gold is starting to look like a pretty good insurance policy, and maybe a lot more than that.

Clearing $1,300 would break the six-year downtrend of the gold bear market. It would be a sign that gold is once again on the way in another of the periodic bull runs that have occurred throughout history. It could be bought here, with a stop at $1,200, or it could be bought on a breakout above $1,300, but again, with a stop-loss order at the long-term trendline. That’s now at $1,200, rising at about 10 points per month.

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About the Author

Financial Analyst, 50-year charting expert, finance + real estate pro, and market analyst; published and edited the Wall Street Examiner since 2000.

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