There are psychological barriers in stocks and metals and we might be seeing one right now with gold. If you look at the chart below you will see that gold had a tough time trying to get over the $1,000 mark and briefly touched it (or almost touched it) 4 times before breaking through on the 5th try. Will we see the same thing at the $1,500 level?

From the time gold first reached $1,000, it took a little over 2 years to bust through and go higher. From that point it has been a pretty steady ascent to the current price of gold at the $1,500 mark but now it seems like it could be stalled there for awhile. Of course, it could even go down from here but as long as the dollar continues to perform so poorly, it seems that gold will at least hold steady.

The $1,500 psychological gold barrier is just that: it is all in people's heads. There is really nothing different between gold being priced at that amount or any other amount. But it seems to be human nature to put an extra emphasis on nice round numbers and give them more significance than they deserve.

Whenever the stock market or gold reaches a "milestone" number, there is extra news coverage and more people become aware that it is happening. However, these numbers like 1,000 and 1,500 for gold and 10,000 for stocks don't necessarily mean more buyers come on board. Much the opposite, the publicity probably spurs more selling than buying as people decide to get out at the top. This makes breaking through these barriers that much more difficult.

No comments: