Gold found footing above $1,600 an ounce yesterday on weak U.S. manufacturing data spurring speculation that the Federal Reserve would be moved to consider additional easing.
In early trading gold climbed $18.29 to $1,613.63 an ounce and silver was up $0.54 to $27.99, lowering the silver/gold ratio to 57.6.
Also priced into the gold market is an overnight gain in the euro versus the dollar and a sudden surge in oil prices which vaulted nearly 3 percent. Joining gold and silver to the upside were platinum, palladium and copper. All in all it was a good day for industrial metals as optimism about the situation in Europe starts creeping back into markets.
Seeing precious metals prices move up is always a mixed blessing if you hold physical metal; while it’s good to see the value of your holdings go up, it raises the cost basis of new purchases.
Still, the prices we’re at today would not prompt me to change my view on precious metals, which is currently to accumulate in small, regular purchases. While it’s sad to see the early summer sale prices coming to a close, we’re really just back to where we started before the price drops of early summer.
The volatility in the market is the primary reason I suggest calculating the cost basis on individual precious metals purchases and labeling every batch in your safe with the date and cost basis per ounce, including shipping. So, if you purchased 10 ounces of silver at $300, including shipping, then your cost basis is $30 an ounce. That way when you convert some of your holdings to cash, you can accurately calculate your gains.
I’d also continue splitting your small, regular buys with silver. Even though we’re off the highs on the silver/gold ratio, it’s still well above where we were earlier in the year. If you buy into the optimism that’s propelling Europe and oil prices, then besides its value as a decorative metal silver is also a play as an industrial metal.
Where this could all go wrong is if the recovery optimism in Europe is overblown and the Fed resists the idea of injecting more money into the economy. They’ve already printed trillions in new money, aided by the rest of the world’s eager willingness to invest in U.S. government debt, but the money is not getting to places where it would do the general economy any good.
My opinion is the bullish trend behind gold is going to continue, at least through the summer.
Get the Market Movements in Advance: William's Edge Webinar for Monday, March 10th, 2014 | John Ransom