Foreign currencies rallied against the dollar sending commodity prices higher as the investment world can’t seem to decide whether Europe is headed for a breakup or China is in for a hard landing.
Gold was up $11.40 to $1,591.68 and silver was up $0.15 to $27.11, with the silver/gold ratio at 58.7.
The euro clawed back some ground against the dollar, bringing commodities along for the ride. Joining gold and silver to the upside were platinum, palladium, crude oil and copper as commodities rallied pretty much across the board.
Trying to figure what moves markets on a daily basis is an exercise in frustration, but the good news is that gold prices are largely tracking with fundamentals.
In that regard gold has been doing its job maintaining pricing relative to currency and actually beating the currency spreads on most days. Demand for gold is holding up quite well.
Holding gold is your insurance for the gap between money and currency, terms many people conflate but are actually quite different. What you use to buy a latte at the coffee shop, the paper notes in your wallet and the computer blips in your bank account, are currency. Currency has no value other than what it derives from the full faith and credit of the government issuing the notes. Some governments are worthy of more faith than others, the principle that drives currency exchange rates.
Money is an entirely different concept that is grounded in intrinsic value. The dollar used to be money when it was backed by physical gold, but since the 1970s it has become currency, fiat currency to be more specific. Today the government can print money willy-nilly without any fidelity to a physical commodity, something we would call counterfeiting in any other context but the Fed calls it “fiscal policy” because that sounds better in a press release.
By holding gold you are taking fiat currency and converting it to a hard asset with intrinsic value. It is true you can’t go out and spend gold at the grocery store, but you can exchange it for virtually any currency on the planet and then go buy your groceries.
That has been the case for gold and silver for the last 4,500 years, so it’s a good bet that the 10 to 15 percent of your wealth in precious metals will still hold value regardless of what happens to the world’s currencies.
Today, at 11:20 AM PT: Get the Market Movements in Advance: William's Edge Webinar for October 31st, 2014 | John Ransom
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