Gold took another hit last night as the dollar continues to surge against the euro. Prices dropped another 2 percent on overseas markets, with gold down another $1.95 to $1,627.60 in early U.S. trading. Silver followed gold lower with prices off $0.81 to $29.91, a price range silver has only briefly visited twice in the last year.
If you bought gold in the $1,700 price range and are now feeling sad, you can take heart that the Federal Reserve is already talking about riding to your rescue. The Fed has never met an economic problem that printing money couldn’t solve and U.S. Federal Reserve Chairman Ben Bernanke is already concerned that the two and a half year U.S. economic recovery may need another shot of cash.
The downside move in gold prices came as a surprise to many analysts, myself included. The steep sell off in silver this week was also a surprise with silver losing 2 percent overnight after trending down most of the previous five days.
It would be easy to blame the surprise downside moves on the deteriorating situation in Europe, but that slow motion disaster didn’t exactly materialize out of nowhere. The latest bailout deal didn’t even pass the smell test, so it’s got to be more than a simple lack of confidence.
Once again I’m getting the uneasy feeling that there’s more to the situation in Europe than we’re being told. I really try not to traffic in conspiracy theories which are, for the most part, wrong. But the simple fact of a slow down of the European economy doesn’t really account for the dollar’s strong performance and subsequent impact on commodities prices. When it comes to Europe, there’s something else going on; the flight to the dollar is bordering on panic.
As long as the dollar continues to strengthen commodities prices, including gold, oil, and silver will continue to show weakness. On the flip side a strengthening dollar will goad the Fed into another round of easing. Not to salvage the recovery, as Bernanke suggested, but to guard our export markets.
The easing will happen for the same reason the Swiss Central Bank started easing when the Swiss franc became the go-to currency, because strong currency makes exports harder to sell on world markets.
If the Fed does print more money or something happens to the European Union, then it’s quite possible we’ll see gold prices punch through the ceiling. In the meantime, make small purchases of gold and silver if you have the cash, these are great prices.
Chris Poindexter, Senior Writer, National Gold Group, Inc
Get the Market Movements in Advance: William's Edge Webinar for Thursday, March 6th, 2014 | John Ransom