A sudden surge of the dollar against foreign currencies sent commodities on an unexpected tumble in overnight trading.
Gold was down $7.40 in early trading to $1,592.80 and silver was off $0.27 to $27.55, maintaining our bizarrely steady silver/gold ratio at 57.8. Commodities were lower pretty much across the board with gold and silver being joined to the downside by crude oil, copper, platinum and palladium.
Gold under $1,600 is an unexpected surprise but the good news is you can move ahead with your regular buy if you can lock in your price before it bounces back up. Where we go from here is hard to say because there’s no good explanation of why we’re here in the first place. I still expect prices to move back toward $1,620 but I might have to abandon that forecast if the dollar keeps gaining ground in currency markets.
Interesting that billionaire hedge fund manager John Paulson recently raised his stake in gold, putting nearly 44 percent of his fund resources into the shiny metal. For a retail investor, that would be far too much of your wealth in precious metals. Keep in mind Mr. Paulson is investing other people’s money, not his kid’s college fund. For the rest of us the percentage should be closer to 10 or 15 percent in physical bullion-priced bars and rounds from well known names in the industry.
It’s easy to understand why some people get enthusiastic about precious metals investment, particularly when you consider the alternatives. Nassim Taleb has some very interesting insights into why the equity markets are little better than a casino rigged in favor of a few players at the top.
The housing market, the other big investment for retail investors, is showing some signs of recovery but when you look at the numbers on new household formation you quickly realize that, while prices may recover modestly in the short-term, the housing market is going to be bumping along the bottom for a very long time. That partially explains why record low interest rates fueled a boom in refinancing but had minimal impact on sales. There are also more alternatives to traditional homes these days, some which offer competitive advantages in the job market.
I’m not suggesting that you should not invest in the housing market or equities, merely that you do so with an awareness of the realities. Sometimes frustration with Wall Street makes gold and silver all the more tempting, but a wise investor avoids getting emotional about any segment of his or her portfolio.
Hussman's Open Letter to the Fed; The Problem with Bubbles; Textbook Pre-Crash Bubble; Reflections on Not Chasing Bubbles; Integrity vs. Respect | Mike Shedlock