3 Things to Know Before You Buy Gold

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Now more than ever, gold is irresistible. It has appeal as a safe haven investment, it's easy to buy as an ETF like the (GLD) which I own, it's become a topic of dinner party conversation, and it goes higher seemingly every day. These facts are both compelling investment themes and traditional signs of an asset bubble. For traders all of that is just noise. The only question that really matters is this: Is it still possible to make money on the long side or is it time to exit via the "golden parachute"?

To give us a best guess on gold's next move Breakout welcomed MF Global's Senior Market Strategist Rich Ilczyszyn (pronounced: "Ilczyszyn"). Joining us from the Chicago Mercantile Exchange, Rich says there are 3 things you have to consider when investing in gold:

1. The debt crisis in the Eurozone is bullish. "Gold isn't a safe haven, it's a currency," says Ilczyszyn. "It's anti-Euro, it's anti-dollar." In other words, as far as gold bulls are concerned, gold is anti-everything collapsing in the Western world.

2. The Fed statement regarding low rates through at least 2013 is bullish for gold. This is another anti-dollar idea with the kicker that the Fed gave us a time frame for just how long yields on Treasuries will be effectively zero. Presumably nothing the Fed may say in Jackson Hole next week will change this fact.

3. At this point in the rally even the bulls are nervous. Or at least both Rich and I are cautious. "Don't just buy and feel comfortable at these levels," he says. Comfort is the enemy for traders. Market strategists who are comfortable are either deluding themselves ("high on their own supply") or selling you something.

Perhaps the greatest curiosity of gold's recent run is the fact that it is impervious to normally bearish influences. The CME raised margin requirements and gold didn't budge. This isn't "supposed" to happen, but it did. Perhaps gold being a global trade is bigger than the CME. Perhaps global demand for gold is such that the price will continue to rise until the last savvy holder sells to the last desperate buyer.

Maybe this time is different. Or maybe not. Ilczyszyn and I pondered some ways to hedge, including scaling into a short position of some industrial metals as a play on the global economy slowing even faster than global paper-money erodes. But that's sort of wonky trader talk.

For most investors the takeaway is point #3: You can be as long gold as you want but you shouldn't be blase about it. Gold is nearly 20% above major trend support. As I'm advising for nearly every asset these days, if you must buy do so in increments rather than one desperate order.

Patience and prudence are virtues no matter what you're buying in this volatile market.