Friday was one of those odd days where gold is “down”, but at roughly the same level it was the day before, one of the peculiarities of global markets.
Gold is down $12.50 to $1,645.40 and silver is off $0.16 to $32.32, leaving the silver/gold ratio right where it was yesterday at 50.9.
If the price pressure continues, we’ll be down on the week almost $100 an ounce. That gold is down again today is both good and bad news.
The good news is that gold prices are falling because the rest of the world economy is looking up and the recovery is solid. Large investors are converting gold to cash to shift into risk on investments like equity markets. The bad news is that gold prices are continuing to fall even in the face of a weakening dollar. That means we’re disconnected from fundamentals and that’s rarely ever good whether it’s an up or down price movement.
The current setup suggests even lower prices ahead, with the caveat that price reversals can happen surprisingly fast in today’s new volatile precious metals markets. Like with the stock market, “buy and hold” has given way to a new reality of small buys on the dips and small sales into rallies.
Hopefully one day soon we’ll have separate indexes for exchange traded products and physical delivery. The way we price gold and other commodities has worked for many years, but that was before the volatility of speculators trading derivative products settled in cash.
If the traders of physical gold could start setting and tracking their own index prices, we could get back to a time when gold trade was so predictable it was almost boring. I miss those days.
People like hedge fund manager John Paulson are simply not going to take physical delivery of a truck load of gold; the logistics of moving and storing it are not something speculators would want to manage.
That’s where equities and commodities should differ. Start making traders take physical delivery, whether it’s gold, oil, wood pulp or orange juice. That would drive the speculators out of commodities, at least those that don’t have very large warehouses.