After a choppy start to the week, gold powered steadily higher through the week, even on days the dollar gained against other currencies. Gold was up on the week and higher for the month so far.
Gold finished the week at $1,627.20 and silver ended at $28.66, bringing the silver/gold ratio to 56.7. There are big forces poised to move gold next week and it could be a rough ride.
The elections in Greece are today (Sunday), so by the start of trading tomorrow we’ll know whether Greeks decided on indefinite austerity to stay with the euro or reject further belt tightening and opt to return to the drachma. If the election is inconclusive, creditors could force the issue and push Greece out of the euro anyway.
What I find astounding in the Greek drama is that a country roughly the size of Colorado can cast a shadow over the entire global economy. But it is what it is and a Greek exit from the euro could fuel gold sales.
The trouble in Europe could add more pressure on the U.S. Federal Reserve to provide another jolt of stimulus cash if the European contagion washes up on U.S. shores. In truth it may not matter with roughly $6 trillion in new money already on the Fed’s balance sheet, the instability of that much cash in the system is already driving gold sales.
As a hedge against economic uncertainty, central banks around the world added over 450 tons of gold last year, the most in five decades and are expected to add another 400 tons in 2012, according to the World Gold Council.
Keep in mind that most of the short-term price action is being dictated by speculators like hedge funds. Those institutional investors trade futures and bullion-backed exchange traded products; those trades can induce large swings in gold prices with very little connection to actual physical trades.
All in all it promises to be a wild ride in gold prices this week, with most of the big money betting on higher prices. Fasten your seatbelts and return your tray tables to full upright and locked position; it’s going to be a bumpy ride.