What To Do If (and When) Gold Prices Drop

Two opposing gold bulls give us a clear picture of what to expect over the coming year.

For one – my all time favorite commodity expert and investor Jim Rogers says that he wouldn’t be surprised if gold dropped to $1,200 an ounce – and that it would be completely normal for the metal to hit such a price over the next year or so.

I think we’d all be a little worried if gold drops that far – but on the flip side of the coin, a recent survey from Thomson Reuters reveals that many analysts believe gold could top $2,000 an ounce by 2013.

So which is it?

I don’t know – and no one really does.

But we need to be prepared for either eventuality. If you’re not mentally prepared for extreme price movement in your investments, then you will likely sell to soon, buy too late, or otherwise lose money.

So… do I think gold could drop to $1,200 an ounce? Absolutely. That’s not great news or bad news for gold investors. But all things being equal, I’d prefer to buy gold at $1,200 than $1,700 an ounce.

And anytime you get the green light from Jim Rogers to buy an asset, you know you’re in good company.

So should you wait for gold to drop 40% before you allocate anymore capital into the sector?

Probably not.

As the Thomson Reuters poll indicates, there’s an equally likely probability that gold will jump to $2,000 an ounce in the next year or so.

And if you hold out hope and wait for lower prices, you’re just as likely to miss out on the next leg up of the bull market as you are to get filled at a lower price.

So my advice – and what I personally plan on doing with my own money – is to set aside half of your potential investment capital for a rainy day in the gold markets. I’m not selling gold at this point, and it’s not an admission that the gold bull is ending – but I also don’t want to tell you to wait for better prices.

They might not come.

So be prepared mentally and fiscally for lower (or higher) gold prices – and you won’t get knocked off the bull too early or too soon.