Crude oil and the euro surged in overnight trading yesterday but precious metals were flat as investors wait for a hint from the Federal Reserve.
Gold was up $2.65 to $1,625.07 and silver was up $0.17 to $29.63, lowering the silver/gold ratio to 54.8. Platinum and palladium were also mostly flat to slightly up this morning.
The weakness in precious metals may be tied to better than expected numbers on unemployment claims as jobless claims fell 12,000 to 377,000 last week. While the jobs report for May was hardly stellar, precious metals may be signalling reluctant confidence in a continued recovery in the U.S. jobs market.
A recovering jobs market is not good news for gold and silver prices which tend not do as well in a recovering economy and could prompt the Federal Reserve to hold off on dumping additional cash into the economy.
I don’t expect an improvement in the labor market to significantly undermine gold prices as there is still too much economic uncertainty in the marketplace. In an ironic turn-around, Germany is mulling over a stimulus rescue plan for Spain while the only organization still committed to European-style austerity is the U.S. Congress.
While copper, crude oil and the euro rose on hopes of a European stimulus plan, the precious metals market has already priced in that bad news and is more concerned with the actions of the Federal Reserve. U.S. stock futures are up after the surprise rate cut by China’s central bank last night, as investors believe that will be one more point on the side of additional easing.
Still, if the Fed opts for another round of easing, which is a fancy term for printing money, expect the price of gold to rocket ahead from current levels. If the Fed forcefully rejects the idea of additional easing, precious metals prices will implode. The reality will likely be somewhere in between as the Fed rarely makes a bold statement on anything.
For now we’ve reached an uneasy equilibrium with all eyes on Ben Bernanke. For retail investors of gold and silver planning to hold their purchases a long time, these contortions are not terribly significant. It might mean you make your regular small purchase later in the month if you believe the Fed is going to hold the line on easing.
When you hold gold for 10 and 20 years, these daily gyrations, while interesting, are essentially meaningless.