Gold Is Fluctuating Wildly - Or Is It?

Anyone who watches the gold prices as I do might at first glance think the market fluctuates too wildly, and buying into gold might do more harm than good if you cannot afford to hold on for the long term. But is that really the case?

In mid-November gold hit around $1420. Within 5 days it had dropped to $1340. On December 6 it hit $1440. Within two days it dropped to $1380. And this scenario has been going on for two years.It is sudden drops like this that over-shadow another important point - it also went UP before it dropped. So, what is really going on and how can you capitalize on it?

Think of it this way - some investors - especially governments - buy and sell enough gold to move the markets. While a $40 increase in the price of gold means little to the investor with only a few ounces, it represents $400,000 to someone with 10,000 ounces - and millions to governments with several metric tons. For example, China owns over 200 metric tons of gold.

When gold spurts up $20-$40 per ounce, large holders (like China) will dump gold and reap millions in profits. This also results in the price dropping by $40-$80 as smaller investors panic at the sudden downturn. When this happens, the large investor (like China) buys back the gold and waits for that huge purchase to drive prices up again. And the cycle starts all over again.

How this knowledge can help you is just as simple - if you know what is going to happen, you can do the same thing on a smaller scale. But because of the actual price per ounce, this kind of investing is not for the weak of heart.

My suggestion - and you can watch the market yourself to see if I am on target here - buy now. Gold is around $1380. Hold onto it until it hits around $1420, then sell and take your profits. Before long the big holders will also dump, driving the price down - AFTER you took your profits. When they do that, wait for the drop to end, then buy back again. Bear in mind that each new uptick will usually go higher than the last, and each new downturn will usually not go as low as the previous one.

That is not to say that other outside influences will not drive gold prices higher or lower than expected - it happens. But if you stay on the conservative side and avoid the impulse of greed, you should do quite well.

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