Markets in the U.S. are closed for the 4th of July holiday, but gold prices held up in overseas trading overnight.
Gold is off $3.90 to $1,615.98 and silver slipped $0.14 to $28.12, for a silver/gold ratio of 57.4.
The dollar was up in overseas trading which undermined commodity prices with crude oil, copper, and platinum joining gold and silver to the downside. Palladium bucked the trend by moving higher against the tide.
Don’t put too much stock in numbers good or bad numbers this week as investors in the U.S. used the mid-week holiday as an excuse to take the whole week off and volume has been light.
I’m expecting at least some profit-taking as investors square up their positions in advance of the European Central Bank cutting interest rates. Lower interest rates will spur more buying of dollars by overseas investors and a stronger dollar negatively impacts commodity price trades, which are denominated in dollars.
The interesting question for next week is how long the U.S. Federal Reserve is going to let this go on. Manufacturing numbers are already soft and if the Fed doesn’t respond we could start seeing pink slips go out in an election year, a development that benefits no one.
To be clear the Fed would be easing strictly to stem the flow of money to the dollar, just like the Swiss did back in the fall of 2011. Whether they call it “stimulus” or a “twist”, whatever name the Fed decides to hang on it, the object is to keep pace with the global race to the bottom on currency valuations and not as much to stimulate the economy. If there was some follow-on stimulative effect, that’s merely a bonus.
If we don’t become a little protectionist in valuing the dollar, we’ll start seeing manufacturing jobs, recently coming back the U.S., start to going to other countries. America can’t buy its way out of debt; we have to start making things again.
Consequently, I expect to see gold prices continue higher through the summer and fall. There are several reasons for that, apart from whatever action the Federal Reserve decides to take.
To get Europe out of its current slump, the ECB is going to need to print money. To stay competitive the U.S. is going to need to print money. With the price of gold already undervalued in relation to the cash that’s already out there, prices have nowhere to go but up.