Reasons Why This Is The Time To Buy Gold

By Casey Murphy | Updated July 28, 2014 AAA

Taking a look at the spot price of gold, you’ll find that so far in 2014 it has risen about 9%. From a technical standpoint, you’ll notice that a recent pullback from the swing-high of $1346.80 found support near the 50 and 200-day moving averages levels commonly used by active traders to determine the change in long-term trends. The recent bullish crossover (shown by the blue arrow) suggests that now could be the ideal time for traders to consider increasing exposure to gold and gold-related assets. (For more on technical analysis, check out Support And Resistance Basics)

GOLD daily screenshot

How To Invest In Gold 

For retail traders who do not have a futures account, the most popular tool for gaining exposure to gold is through the SPDR Gold Shares ETF (GLD). This fund is extremely liquid and it seeks to replicate the performance (net of fees) of the price of gold bullion. As you can see from the chart below, the bounce off of the nearby moving average suggests that the next stop would likely be $129.21. (For more, check out What To Do About Gold Now)

GLD spdr screenshot

Investing In Gold Companies

It is quite common for a retail investor to want to invest in gold mining companies in an attempt to gain leverage to rising gold prices. One of the best methods for narrowing down a lucrative watch list is to check the components of an exchange traded fund such as the Market Vectors Gold Miners ETF (GDX). As you can see from the chart, the price has been on the move higher in response to rising gold prices and the golden crossover suggests now is the time to invest in gold mining companies.

GDX

A Look At The Key Components

In the table below, you’ll find top picks of the GDX ETF. These companies represent exposure to a wide range of global gold mining stocks ranging from small-, mid- and large-cap stocks. Any of these companies would be a good starting point for a retail investor looking to get their feet wet in the gold mining sector.

Company (Ticker)

Weighting (%)

Goldcorp Inc. (GG)

13.44

Barrick Gold Corp. (ABX)

13.21

Newmont Mining Corp. (NEM)

7.51

Silver Wheaton (SLW)

5.67

Agnico-Eagle Mines Ltd. (AEM)

5.09

 

A Closer Look At Goldcorp

Goldcorp (GG) is the world’s largest gold mining company with a market capitalization of $22.6 billion. It is little surprise that the chart looks nearly identical to those shown above since it is the eight hundred pound gorilla in the sector. Many gold bugs have been waiting years for the bullish crossover shown between the long-term moving averages. It would not be surprising to see traders protect their positions from another whipsaw-type of move by placing their stop-loss orders below the support of the long-term 200-day moving average ($24.54). In addition, conservative traders may wish to remain on the sidelines until the price moves above the recent high of $29.34. Furthermore, this group will also want to wait until the volume starts to pick up because this will trigger a confirmation of the new found uptrend. (For more on moving averages, check out 3 Simple Moving Average ETF Trading Strategies)

gg screenshot

 The Bottom Line

The bullish crossover between the 50- and 200-day moving averages shown on the charts of gold miners and the underlying commodity suggests that prices are set to rise over the coming months. Most retail traders will be looking to increase exposure to the sector either through ETFs such as GLD or GDX or more directly, investing in gold mining companies such as Goldcorp. It is recommended that any long strategy is accompanied with a stop-loss order below the 200-day moving average shown by the red line above. (For more on gold, check out 5 Best Bets For Buying Gold)

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