Gold battled the headwinds of a stronger dollar to move higher yesterday morning on mounting concerns over the Euro-zone sovereign debt crisis.
An ounce of gold was up $8.32 to $1,566.69 and silver was up $0.42 to $28.09, lowering the silver/gold ratio to 55.8.
The European Central Bank and finance ministers are telling member states to start preparing for a Greek exit from the euro. The idea now is to prevent a domino effect from triggering more countries to leave.
I’ve seen the markets turn ugly in May before, hence the old Wall Street saying, “Sell in May and go away.” But I’ve never seen this; the whole global economy deflating like a leaky party balloon at 3 am.
To be clear, I don’t think the global economy is going to melt down. Perhaps it’s better to say I don’t think it’s going to melt down much more than it already has. Governments can print virtually unlimited amounts of money, so the idea of a global economic collapse seems unlikely.
Gold prices are still trending with the dollar most days, with today being one of the exceptions. Right now the U.S. is shouldering the world’s cash crisis. We can do that for a while because we have big economic shoulders, but we can’t do it indefinitely. At some point the Federal Reserve will have to pump more cash into our economy.
The first hint of easing by the Fed is going to send precious metals prices on a rocket ride. There is so much cash sloshing around in the world economy that panic-induced gold buying could send prices into new record territory.
We’re just waiting for a trigger to set it off the bulls. Greece leaving the euro might do it, but I think a lot of that bad news has already been priced into the market. A Federal Reserve stimulus announcement would definitely do it, but so far the Fed has been surprisingly resolute in holding the line.
In the meantime we have right now one of those rare opportunities to accumulate gold and silver at a discount. Enjoy it while it lasts, because when it goes we’re going to be looking at today’s prices in the rearview mirror.
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