Four tips for gold trading

Gold prices rose 2% to a record $1,820 an ounce on August 18 after data from the US showed the economy would continue to stagnate, while concerns about European banks and the eurozone crisis remained unabated.

Gold prices rose for a fourth straight day on news of a slowdown in U.S. manufacturing activity and a slowdown in home foreclosures, Reuters reported. Investors ditched stocks and other risky assets for safe havens like gold and U.S. government bonds. The Dow Jones Industrial Average fell 5 percent and oil prices fell 7 percent, sending gold to its seventh straight weekly gain.

However, Reuters quoted analysts as saying that gold prices exceeding $2,000 an ounce were unlikely due to low interest rates on gold and prices having risen $350 in the past month and a half. Silver prices also rose 1.2% to $40.65 an ounce.

Some analysts warn that gold prices could fall as much as 30% in the future. According to the World Gold Council, demand for gold fell 17% in the second quarter due to a drop in demand for gems, gold coins and gold bars.

Four tips

Financial website Smart Money also issued four warnings about the risks of investing too much in gold at this time. The website said that while young people can take more risks in gold investments, retirees or those nearing retirement should not hold too much gold.

The first piece of advice, according to Smart Money, is not to rush into the herd. The current rush to buy or sell gold is “mostly emotional,” said Paul Baumbach, a financial advisor at Mallard Advisors in Newark, USA. It is important not to rush into the gold rush, especially for retirees or those nearing retirement, “who need to have a long-term strategy,” advised Andrew Feldman, president of AJ Feldman Financial in Chicago.

The second tip is to keep gold low in your total assets or portfolio. Gold can be part of a long-term investment and accumulation strategy, but not too much. Feldman often advises his clients to keep gold at a maximum of 2% of their portfolio. “That way, if gold falls sharply, retirees won’t lose too much,” Smart Money quoted Feldman as saying.

The third tip is to have an exit strategy. “If you own more than 5% of your portfolio in gold, it’s time to think about an exit strategy,” said Lance Reid Scott, president of Bay Harbor Wealth Management in Baltimore. The advice is not to panic and sell all at once. “Scheduling gold sales can get you a good price, rather than waiting for the market to pick up,” Scott said.

Fourth, investors should be aware of how vulnerable they are to the golden ratio in their portfolios. Many investors don’t realize this, Feldman said.

(According to Tuoi Tre)