Gold tracked towards the upper end of its trading range on news that austerity got the boot in European elections.
Gold was up $1.32 to $1,640.30 and silver was up $0.14 to $30.28, lowering the silver/gold ratio to 54.
The big news overnight was that austerity and government cutbacks got hammered in European elections, with a socialist candidate vowing to tax the rich sweeping into power. It was the same story in Greece where a new administration, also planning to raise the marginal tax rates on the wealthy and cut defense spending, crushed the party responsible for steep cuts in government services.
The dollar surged against the euro on the news, putting downward pressure on commodities, yet gold managed to hold basically even while silver, platinum and palladium managed marginal gains.
It appears the forward looking players in the European precious metals market are betting the elections are going to trigger a return to deficit spending and an increase in inflationary pressures. A lot of investor free cash flowed into dollars, but this time at least a few opted for metals.
This does seem like a pretty solid setup for gold and silver going forward and retail buyers should continue making small, regular purchases in the current choppy trading range. If the Federal Reserve announces a new round of easing or Congress, potentially facing the same type of austerity backlash in the fall, opts for a big infrastructure bill, we could see a significant rise in precious metals prices.
Overall, there seems to be more bias to the upside with the potential pitfall being a continued drop in unemployment numbers. It’s hard to think of more jobs as a bad thing, regardless of what happens to gold prices because of it.
For right now Europe is providing the wind under the wings of gold and silver, so all we have to do is ride the current trend. In an upside down global economy built on paper script where debt is money, it’s so nice to be able to opt out of currency follies and insulate at least part of your wealth in gold and silver.
Take advantage of the current lull because I have a feeling it’s going to be a bumpy summer.