When Will You Know It’s Time to Sell Gold?

Lately we’ve had questions on the best way to determine when it’s time to sell gold (and silver). So we thought it worthwhile to update an old article of ours on this subject from back in 2010. It looks at 7 ways to determine if it is time to sell gold with updated numbers for 2017…

Is it time to sell gold?

“The ultimate asset bubble is gold” said George Soros in late January 2010.

This was widely reported as Gold is now the ultimate bubble. A subtle but very significant difference, thereby implying that Soros was stating that gold was in a bubble right at that time.

Only Mr Soros knows what the true intent of his remarks were. However the fact that he had been purchasing shares in both gold mining companies and the Gold ETF at the end of the prior year would make you think he was likely doing his best to talk the gold price down so he could buy some more at cheaper prices. Most likely these were very carefully chosen words that he knew would be misinterpreted by an uninformed mainstream media and help to prod the masses to sell gold.

(Update 2017: That in fact proved to be the case. With gold falling in the years following Soro’s remarks. As expected he then also bought back into gold mining companies like Barrick Gold over the past couple of years, along with re-entering the GLD ETF. So Soros did re-enter gold and related assets at lower prices than the time of his original statement)

History proves that Gold is in fact the ultimate bubble. 5 years after the 1929 stock market crash, gold’s investment purchasing power rose 17 times. From 1970 to 1979 it rose 15 times. But from 2000 to now gold is up 4 times (Source: Bullionvault). So with only a 4 fold rise so far in this bull market, the ultimate bubble seems like it is a few years away yet. Or put another way gold is in fact the anti-bubble, the ultimate extinguisher of debt as per John Exter’s Inverse liquidity pyramid (A whole other topic in and of itself).inverted_liquidity-pyramid-kondratieff-winter

But the oft-asked question is “When will I know it’s time to sell my gold?”‎

Unfortunately there is not likely to be someone holding up a sign proclaiming ‎‎“The top is in – Sell Gold Now!”  However history shows there may be some ‎not quite so literal signs we can still look out for.

Below is a list of them and ‎our verdict on their “bubblishness”.

1.  Dow Gold Ratio.

The Dow Gold ratio is simply the Dow Jones Industrial ‎average (a measure of the US stock market) divided by the price of gold.  It is ‎useful as a guide as to when stocks are cheap and when they’re overvalued.  ‎See the below chart care of sharelynx.com for these extremes. ‎

Long term dow gold linear chart since 1800

Towards the end of the 1930’s depression the ratio reached a low of 2 and at ‎the end of the inflationary 1970’s it reached a low of just over 1.  It’s currently ‎at just under 10.  So history shows the time to sell gold will be when the ratio ‎reaches these levels again.  Interestingly the below Log scale graph (hat tip to ‎Sharelynx.com again – a must visit site for great graphs) shows the ratio has ‎made higher highs each time it has peaked over the last century.  It also ‎made a lower low in 1980 so could fall below 1 at the end of the current ‎monetary crisis.  ‎

Long term dow gold log Chart from 1800

So while the ratio has fallen it’s still at 10.  Verdict: No Gold Bubble. (For more on ‎the Dow Gold ratio see this earlier article Expert gold miners opinion on the dow gold ‎ratio.) 

Update 2017: The Dow Gold ratio has actually risen since 2010. Now sitting at over 16. So definitely not in bubble status yet for gold. In fact it seems like the US stock market is more likely getting closer to bubble status than gold is.

2.  Housing gold ratio.

Much like the Dow Gold ratio, the Housing gold ‎ratio also indicates when housing is over and undervalued.  In New ‎Zealand the ratio last bottomed out in 1980 at just over 50.  ‎

nz_house_prices_to_gold_price

It’s currently at 250 so when it gets close to 100 that might be the time ‎to swap some gold for property.  We covered the US, UK and NZ housing gold ratio in ‎great depth previously here: Could NZ House Values drop by 80%. Verdict: No Gold Bubble.

Update 2017: The NZ House Price to Gold Ratio is currently at 283 as of the end of February. So again gold is even further from bubble levels which would be below 100 ounces.

(Note: If you’d like some assistance with timing your eventual exit from gold and silver, then you may want to meet our “secret” investment advisor.  You can learn more about who he is… And how you could benefit from his uncanny ability to enter and exit not just the precious metals markets but many other markets too, at just the right time.  So go here to learn more now.)

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‎3.  Real interest rates rise.

A common misconception is that gold ‎performs poorly when interest rates rise as gold pays no dividend or ‎interest.  However the key is what real interest rates are doing.  That is ‎the nominal interest rate less the rate of inflation.  Currently there is ‎very little reward in the form of interest for keeping your money in the ‎bank, and real interest rates are actually negative as per the graph ‎below from McClellan Financial Publications, www.mcoscillator.com

Gold-versus-real-interest-rates

You’ll notice how gold continued to rise throughout the 1970’s until real ‎interest rates finally turned positive again.  However, today central ‎banks find themselves in a worse position than 1980 as it will be very ‎difficult to raise interest rates sufficiently to head off gold without ‎destroying their economies in the process.

So interest rates could rise ‎from here but if inflation rose too then real rates would stay below zero, ‎and gold would continue it’s rise as there would still be insufficient ‎reward for dollars in the bank.  Verdict: No Gold Bubble.

Update 2017: This is indeed what seems to be happening currently. Interest rates have started to rise over the past 9 months or so. But inflation rates are also starting to tick higher. End result? Real interest rates remain negative. In fact they are even more negative than back in 2010 in many countries including the USA as this report says, despite the US Central Bank raising interest rates over the past year or more.

4. Governments become fiscally responsible.

At the end of the ‎inflationary 1970’s we had the likes of Margaret Thatcher in the UK ‎cutting government spending and Paul Volker for the US Federal ‎Reserve raising interest rates significantly to fight inflation.  Here in NZ ‎the 80’s saw “Rogernomics” and some harsh medicine for the country ‎to swallow.  Worldwide generally this period saw taxes cut along with ‎government spending.  Cast our eyes across the planet at the politics ‎of today and generally we see more government spending and ‎increasing public debt and likely higher taxes – as much as they would ‎have us believe otherwise.  Verdict: No Gold  Bubble.

Update 2017: Well, there doesn’t appear to have been much change in this area either. In the USA, Trump’s policies look to be to continue to spend much like his predecessors. Europe also doesn’t appear to have changed markedly from 7 years ago.

5.  People discuss how much their gold mining shares have risen at ‎dinner parties and where to buy the cheapest gold coins.

Most ‎likely you currently know very few people in your wider circle of friends ‎and acquaintances that have any gold or gold related investments.  ‎When the tables turn and gold is dominating discussions at social ‎gatherings and regularly on the mainstream news we are likely getting ‎near a top.  A long way from there yet I’d say.  Verdict: No Gold  ‎Bubble.

Update 2017: No change here. In our experience there is probably even less interest from the general public in gold or silver than 7 years ago.

6.  There are Gold kiosks selling gold bars and coins popping up in ‎shopping malls everywhere.

As we have mentioned previously ‎here, we are seeing the opposite of this currently ‎with kiosks popping up buying gold from the public.  Verdict: No Gold  ‎Bubble. (However, the counter to point 5 and point 6 above is that ‎Joe Public may be so tapped out and broke that he won’t be able to ‎afford to buy any gold.  In this case it will be institutions that are buying ‎gold bullion and gold mining shares.) ‎

Update 2017: Again, no proliferation of people selling gold or silver. In fact a couple of bullion retailers have actually disappeared from the market since 2010.

7.  Our website visitors rise exponentially!

Highly likely if more and ‎more people start paying an interest in gold.  They’re rising steadily ‎currently.  Don’t worry we’ll let you know if our visitor numbers start ‎exploding without us doing anything to warrant it.  Verdict: No Gold  ‎Bubble.

Update 2017: You won’t be surprised to hear there has actually been a fall in website visitors over the past few years. Again indicative of a lack of interest in gold and silver and another sign that we are long way from a bubble in either metal yet.

The other possibility to consider is that you may not have to sell your gold ‎at all.‎ ‎“Huh?”  You may be thinking, “I’ve read stories of people who didn’t sell ‎gold when it was in the $800’s at the end of the 1970’s and then watched it drop all ‎the way down to $300 or less.”‎ Well, you see, the possibility exists that gold could become widely accepted ‎again as money.  This could come about in a couple of ways…‎

‎1.‎   The elites may be forced to reintroduce a gold standard and hopefully a ‎true gold standard as existed prior to WW1.  Whereby an ounce of gold ‎is worth a specific dollar amount.  So gold = money.‎

2.‎   The above doesn’t happen and so the global financial system totally ‎breaks down, maybe hyperinflation ensues, paper money is worthless ‎and people resort to trading and bartering.  Gold will still buy the same ‎amount of goods and services as it always has.  Again gold = money.‎

Another possibility bandied about by the likes of Jim Sinclair of jsmineset.com, ‎is that the elites merely introduce a loose gold link.  This would possibly be by ‎way of a new global currency with gold trading in a narrow range but at a ‎much higher price.  This would allow the master planners to still control the ‎currency issuance – albeit with a partial handbrake on their money creating ‎powers.‎

Whatever the final outcome, it appears that paper currency is slowly (or ‎maybe not so slowly) dying.  Who knows what will deliver the death blow, and ‎it could be a way off yet, but none of the above signs of a “gold bubble” are ‎here yet so don’t sell gold…..‎ Buy gold (and silver).‎ Hold gold (and silver).‎ Learn, observe and wait.‎

(Note: If you’d like some assistance with timing your eventual exit from gold and silver, then you may want to meet our “secret” investment advisor.  You can learn more about who he is… And how you could benefit from his uncanny ability to enter and exit not just the precious metals markets but many other markets too, at just the right time.  So go here to learn more now.)

Read more on this topic: 

How to Sell Gold and Silver Bullion>> 

Exit Strategies For When the Time Comes to Sell Gold and Silver >>

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Note: If you’d like some assistance with timing your eventual exit from gold and silver, then you may want to meet our “secret” investment advisor.  You can learn more about who he is… And how you could benefit from his uncanny ability to enter and exit not just the precious metals markets but many other markets too, at just the right time.  Go here to learn more now.
If you’d like to know the exact process for selling gold and silver see: Sell Gold & Silver Bullion, Bars or Coins

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21 thoughts on “When Will You Know It’s Time to Sell Gold?

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  2. steve says:

    Soros is an old crook , while he is saying gold is a bubble he and others of his ilk are buying big time, particularly physical and shares ( not the scams of ETF etc)

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