Gold moved higher on a rally by the euro as European borrowing costs dropped dramatically after the European Central Bank lowered interest rates.
In early trading yesterday gold was up $5.63 to $1,584.15 and silver was up $0.27 to $27.24, lowering the silver/gold ratio to 58.1.
Commodities were higher across the board, lead by crude oil which got an extra kick on news of a possible production strike. Platinum, palladium and copper were all higher as well, but mostly in line with gains by the euro.
Some interesting news related to bonds and the Fed’s latest iteration of Operation Twist is that none of the banks are selling their bonds back to the Fed. Even though interest rates on government bonds are at record lows, they’re the hottest investment in an uncertain global economy and dealers are reluctant to sell them back to the Fed, even with a sweetener on top of the intra-day rate.
It’s a bit of a surprise that in this economic climate that gold prices are drifting along with currency rates. At current bond yields one would really expect more of the world’s free cash to be flowing into gold.
Do keep in mind, while it appears gold traders are still playing second fiddle to bond traders this week, all the conditions are there for a sudden surge in gold prices.
Of all people I should not be the one complaining about a lack of volatility in the gold market, but what’s happening here is very odd. Europe is debasing their collective currency with low interest loans and investors are all looking for safe places to park their cash. In the U.S. we have already printed trillions of new dollars and have gotten away with it because investors are lining up to give the U.S. Treasury their money.
Nevertheless, here are gold and silver in relatively quiet waters while the rest of the investment world weathers economic turmoil. In these conditions it’s hard to make any other recommendation than to continue to accumulate small lots as part of a broader investment strategy.
As I’ve mentioned previously silver is still attractively priced relative to gold, so I would continue to buy small lots of bullion-priced physical metal and split your purchases between gold and silver.