Investment News

Jeff Clark of Casey Research recently wrote an amusing yet instructive article about buying gold. His point is a simple one. Gold prices rise and fall based almost purely on investor psychology. For the last few years, gold has been rising as a relative handful of investors have bid it up. Lately, gold has been in a bit of a funk. So the question really becomes: when is the next wave of psychological panic going to hit?

Clark's answer is that, as always, it's going to hit as the economy becomes more rocky. He came up with a cute little survey for the reader to use to decide how high they think gold prices are going to go up, so that they know when to sell. The survey is completely unscientific and should not be taken seriously, but it is does provide a great illustration as to what makes gold prices change.

Here are the seven survey questions:

1. Of all your family members, what percentage have told you they own gold in any form?
2. Of all your friends, how many have told you they’ve purchased gold or gold stocks?
3. Of all your co-workers, how many have discussed anything positive related to gold?
4. Of the neighbors you talk with regularly, how many have initiated conversation about any topic centering on gold?
5. How many conversations have you had with any other party (at work, at a gym, on an airplane, after a religious service, etc.) who spoke positively about gold in any way?
6. Excluding any gold-related websites or publications you regularly read, what percentage of all the materials you read (magazines, newspapers, online articles, etc.) discuss gold in a positive way?
7. What percentage of the investment vehicles available through your company’s IRA, 401k or other retirement plan include something explicitly related to gold?

You score your answers based on 1 point for Nobody, 0 points for less than 10%, and -1 points for more than 10%. Then you're supposed to take that score, multiply it by the current spot price, and that's your target price. It's a little hokey, but it makes a very clear point. The time to buy gold is just before it becomes popular to do so, not afterward, and gold becomes popular when people are talking about it.

On the other hand, there's a lot of doubt as to whether this survey will actually help time the market properly. For instance, it could easily lead one to buy into a bear market on the way down.