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.
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.