Somehow currency traders got the idea that the U.S. Federal Reserve might actually follow through with their threat to add more money to the economy and the dollar sank in overnight trading providing a boost to commodities.
Gold soared $13.82 to $1,587.50 and silver was up $0.33 to $27.48, lowering the silver/gold ratio to 57.7.
Oil saw its biggest overnight surge in a long time as the news of lower U.S. gasoline stockpiles combined with the weakening dollar moved crude oil prices back over $90 a barrel. Also higher in early morning trading were platinum, palladium and copper.
The good news wasn’t limited to commodities as overseas markets surged higher. It’s hard to say where all the optimism is coming from, more likely the negative sentiment was overblown in the first place and this is merely the correction.
The U.S. economy got some good news on housing starts and sales of previously owned homes, which are the first really concrete signs that the real estate market is finally coming out of the gloom.
It remains to be seen if this is the beginning of a long-term recovery in gold and silver prices or just one happy day. Much of that will depend on the Fed; if we get another significant jolt of stimulus cash, I see prices rising back to the $1,620 range over the near term.
On the longer time horizon it will depend on whether we see an uptick in demand from China and India. Retail gold and silver sales in both countries have been sluggish on a slower Asian economy. Watch the manufacturing index for a clue; when manufacturing picks up, the first places it will be felt are China and India.
Overall it may be a little early to start singing Zip-A-Dee-Doo-Dah. We’re late breaking out of the usual summer slump in precious metals prices this year on soft demand from Asia. While prices we’re seeing today are a healthy sign, I just don’t see a lot of momentum behind this push.
In the meantime, $15 an ounce is not enough price movement to change your investment game plan. I would continue to accumulate in small lots of bullion-priced precious metals until gold prices move over $1,600 an ounce for gold and silver hits $30 an ounce.