It was another one of those strange market days where gold trading started out weak, but on higher prices than yesterday.
Gold encroached on prices we haven’t seen since January, trading up $1.24 to $1,638.74 and silver up $0.11 to $29.37, lowering the silver/gold ratio to 55.8.
I look for profit-taking to kick in here as high-volume investors and those trading gold in bullion-backed securities, like ETFs, move to grab some profits.
For retail buyers of physical gold this market move is interesting but not particularly motivating, unless you need the cash and are selling some of your older gold holdings. With the premium you pay on the spot price for physical gold, there just isn’t enough margin for retail buyers to trade on shallow markets. When you’re buying gold as part of your investment strategy, you’re working on a much longer time horizon; think in terms of decades.
Probably the most disappointing aspect of this rally is seeing silver prices recover and, more importantly, the silver/gold ratio drop back to 55 or below. That might seem like an odd sentiment, especially considering that means the silver in your safe is worth a lot more now, but I was really having fun shopping for silver and now that party’s over for a while.
My sense is the global economy is working to turn a corner and start moving higher, a development that will almost certainly bring commodities along for the ride. Do keep in mind that’s going to be a long and uneven recovery process.
Consider the housing market. Local real estate agents are popping champagne because prices are recovering and record low interest rates are motivating a few people to get back in the market. But I’m still skeptical; anything looks bright after pitch black. I have my own index that looks at how many hours the teams taking care of foreclosed properties put in every week. As long as those teams are putting in 80 hours a week, like they still are now, that means the backlog of foreclosed properties is still with us.
Don’t be disappointed if you missed the chance to accumulate gold over the last few months; there will almost certainly be another opportunity. We may not see sub-$1,600 again for a while, but any entry point under $1,620 will suffice for small buyers holding gold for a long time.
Today, at 11:20 AM PT: Get the Market Movements in Advance; Williams Edge Webinar for July 28th, 2014 | John Ransom