Commodities were up sharply in overnight trading yesterday as the euro gained back some ground against the dollar.
Gold was up $17.36 to $1,635.14 and silver surged $0.82 to $29.32, dropping the silver/gold ratio to 55.7. Joining gold and silver on the upside was just about everything including platinum, palladium, crude oil and copper.
Gold analysts at most major banks are maintaining a $2,000 an ounce price target and central banks continue to buy gold as a collateral hedge.
The sudden enthusiasm for gold on Wall Street may signal that we’re at a bottom for gold selling. As I mentioned last month, it’s not unusual to see investors selling gold during times of down markets when they’re fleeing to cash. Once the markets are awash in liquidity, all that money has to go somewhere.
Another factor for gold is that China and India have both been slowing economically and that ripples down to gold purchases at the consumer level. If manufacturing and growth start to pick up again, expect the demand curve to increase.
Investors will be watching Federal Reserve Chairman Ben Bernanke closely as he testifies before Congress tomorrow. If he comes right out and puts down any talk of another round of stimulus, expect gold prices to crater. If Bernanke hints there may be another liquidity option on the table, we could see precious metals push even higher.
Keep in mind the market has already priced in the expectation of some type of stimulus from the Fed and the only real surprise would be to the downside.
Hopefully you made your buys last month, because prices are going to be really volatile the next couple weeks until the market gets some direction. If you’re buying for a long-term hold the $1,600 range is not a terrible entry point. For time periods of 10 or 20 years, $100 an ounce just isn’t that significant.
It really boils down to what you think the Fed is going to do. If you think Bernanke is done printing money, then wait a couple weeks. If you believe the Fed is going to give Wall Street another fix of nearly free cash, then there may still be room to the upside even though some of that expectation has already been priced into the market.