Precious metals analysts are, as a group, feeling bullish on gold prices next week with a significant majority expecting prices in the $1,600 an ounce range next week.
Last week gold closed strong but still down for the week at $1,572.20 an ounce and silver finished the week at $28.49, down less than a percent on the week. The silver/gold ratio ended the week down a point to 55.
The trading optimism for next week, which doesn’t start up again until Tuesday because of the holiday, stems from the feeling that the Fed is going to announce some kind of stimulus plan.
Keep in mind that stimulus may not be limited to the Federal Reserve. The European Central Bank will almost certainly undertake some program to pump cash into a struggling Euro-zone over the strident and persistent objections of Germany.
Where it could all go wrong is if the Fed snuffs at another round of stimulus leaving Operation Twist to expire in June with no imminent replacement. That would certainly spur an even greater rush to the dollar.
I’m going to side with the analysts betting the Fed will be moved to another round of stimulus. The Fed can’t stand by and watch the dollar get stronger and stronger in the face of current employment numbers. If Bernanke doesn’t stay competitive in the global race to the bottom in paper currency, then we can expect layoff notices to dominate the headlines. That’s just not going to happen in an election year.
This price trend will reverse at some point; there are just too many bullish indicators for gold out there for the downtrend to continue indefinitely. Besides, the mid-$1,500 an ounce price range is not a bad entry point no matter what happens down the road. As always, keep some cash in reserve if prices do drift sideways or down in the near term.
Look for sales of bullion-priced 1 ounce bars. While there are fractional bullion products out there, the markup is higher because the cost of production is still the same.
With the silver/gold ratio still high, I might split some of my regular buy with silver. While silver is going to be influenced more by the global manufacturing picture, it has managed to track pretty closely with gold through the current volatility.
I still maintain that we’re going to look back on these days as a golden buying opportunity for precious metals.