I realize the headline sounds like something written while I was still half asleep, but one of the interesting realities of a global market is that you can start the day lower on higher prices.
Gold was down yesterday AM $5.89 to $1,578.97 and silver was off $0.21 to $27.27, trimming the silver/gold ratio 57.9, down from the year-to-date high of 58.6.
You might have noticed that gold was up sharply while your 401(k) plan was taking another epic beating. While nothing like the great crash of 2007/2008, your equity investments are reflecting the general slowdown in the global economy.
The dollar gained more ground against the euro, which took down commodity prices generally including crude oil, copper, platinum and palladium. In comparison, though gold and silver also lost ground, they held up surprisingly well.
It seems to be physical buying that’s keeping the wind under the wings of gold and silver. There is certainly enough uncertainty to go around in other investment classes and central banks and individual investors are seeking out gold and silver as a place to park some of the massive amount of free cash sloshing around the global economy.
It’s an odd economic situation we find ourselves in lately. Big banks are getting hammered by rating agencies while the government is literally flooding them with nearly unlimited amounts of free cash. Unfortunately, the big banks are not loaning it out to anyone who might put it to work building up new businesses and hiring people; they’re hoarding that money to cover derivative bets on struggling European banks.
That strange and economically crippling situation, the end result of repealing the Glass-Steagal act, is ultimately good for those who keep some of their wealth in physical gold and silver. Bullion priced precious metals in your safe are one of the few asset classes largely immune from market manipulation.
Don’t get the long-term price of precious metals confused with the spot price, which is subject to wild swings based on the manipulation of futures contracts. While the short-term spot price is subject to price manipulation, sooner or later the price of precious metals will equalize with currency policy and the economy.
Given the uncertainty in the world and the amount of cash available, I think this is a great time to be buying precious metals. I’d suggest splitting at least part of your usual buy with silver, which is still attractively priced relative to gold.