It was a wild week for gold which ended higher, but not by much. After some wild swings gold finished the week at $1,772.20, up $3.15 and silver was down $0.12 to $34.49, for a closing silver/gold ratio of 51.3.
Despite the optimism around gold, this week was basically flat, albeit flat around a price level nearly $200 an ounce higher than in August. This market pricing tends to reinforce my belief that the latest round of quantitative easing was already figured into the price of gold before the Fed made the announcement.
There are now three central banks that have announced willingness to create virtually unlimited amounts of cash to meet the current fiscal crisis: Europe, Japan and the U.S. In reality there are many more playing the same game, like China, but they don’t need to make an announcement because they fiddle with their currency all the time. Brazil didn’t come out and say they were going to start printing reals; instead they came out with an announcement of how annoyed they were with the U.S. and Europe and then warmed up the printing presses.
Given the state of ongoing currency wars, the long-term future of gold and silver prices looks very bright indeed, but that doesn’t mean next week is necessarily going to look better.
In the nearer term we may be in for a correction. $200 an ounce is a big swing in gold prices and will no doubt tempt many to lock in some profits, though keep in mind that a mildly “down” market in this climate may look more like last week, with a lot of rapid price swings in both directions.
Just like a wounded fish splashing around in the salt flats attracts predators, so rapid volatility in the precious metals markets attracts the sharpies on Wall Street. When everyone is talking about gold is not always the best time to be trading it, unless you’re making small sales and plan to use the cash to buy durable goods.
So next week then we may test $1,800, maybe more than once. Stay alert for the potential of a price correction on profit-taking. If gold does top $1,800 and hold it, I might consider another round of small sales if you have the inventory of physical gold and healthy reserves.
It seems more likely we’re due for some kind of correction, if not next week then soon. Some people are looking at 10-12 percent margins on purchases they made in August, you know they’re going to be tempted to lock in those profits.
The bottom line is that I’m warily optimistic about gold prices.
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