It’s too early to say if this is gold finding a new normal for pricing, a relief rally or the infamous dead cat bounce, but precious metals finally moved off recent lows and into positive territory.
Gold was up $12.28 to $1,717.20 and silver was up $0.33 to $32.17, for a silver/gold ratio sliding to 53.3. Gold and silver had a lot of company to the upside in commodities early with platinum, palladium, crude oil and copper all posting gains.
The euro finally found some footing against the dollar, although it’s hard to say how long that might last. The news is mixed from across the pond as the European recovery struggles to gain traction. The global economy is stuck in a mode that can be best described as three steps forward followed by two back, a recovery that is both fragile and fickle.
In the U.S. the economic news is much the same as conflicting forces fight for dominance. While employment numbers continue to improve, layoff notices have begun to creep back into the business headlines. Layoffs are almost always a net negative for the middle class, even if the job market is healthy, as new jobs being created rarely pay as well as those being lost.
Regardless of who wins the election in two weeks, we’re all going to be paying higher taxes and higher food bills; there’s simply no way around it. Compounding higher prices for necessities next year will be the constant inflationary pressure from the Fed’s QE Infinity. So far inflation has remained relatively tame and the government has been spared the nightmare scenario of escalating borrowing costs because the rest of the world is in worse shape than we are. But that’s not going to last.
If you agree with me on the inflationary outlook, then gold prices in the low $1,700 range don’t look too bad. The counter argument for gold prices says that deleveraging will continue to keep inflation for everything except food prices in check through next year.
Your precious metals play will depend on which of those forces you think will be the dominant player when it comes to gold and silver prices. If inflation is your worry, then $1,700 is a fine entry point. If you believe deleveraging will continue to dominate the financial tides, then expect turbulent precious metals prices with frequent dips into the $1,600 range.
As for me, I think inflation is a sleeping giant that will surprise everyone when it awakes. I’m long on silver at these prices and watching for deals on bullion priced fractional gold bars. Even if I’m wrong on my prediction for next year, inflation will happen eventually.Chris Poindexter, Senior Writer, National Gold Group, Inc
It seems strange that gold not losing ground would be a headline but after the last week one should take good news where you find it.
Gold was down a mere $0.10 in early trading to $1,710.70 and silver was up $0.15 to $31.93, for a silver/gold ratio steady at 53.5. Commodities were mostly flat with crude oil, copper and palladium weakly lower and platinum joining gold slightly higher.
If gold can hold prices over $1,700 an ounce, that’s actually a fairly bullish sign considering we were trading in the $1,580 an ounce range just last August. The precipitous drop from $1,780 an ounce territory feels like a bear bite but it’s not just gold feeling the pinch, it’s many industrial commodities including crude oil.
The most likely explanation is that commodities were overvalued relative to the pace of recovery in the global economy. If that were indeed the cause, then silver would face more exposure to a drop in industrial metals than gold and that’s exactly what we’re seeing as the silver/gold ratio, the number of ounces of silver it takes to buy an ounce of gold, gradually crept up over the last week from 51 to 53.5.
I would be more concerned if gold and silver were taking a pounding apart from other commodities, but they’re pretty much in line with the rest of the market and at least loosely correlated with currency prices.
At times like these consider starting up small purchases again. The U.S. Federal Reserve is backing that strategy by continually diluting the value of your cash savings by printing money. Many observers expect the Fed to announce that the current QE program will be extended to 2014, which I call QE Infinity.
The Fed is playing a game of chicken with people who opted out of the debt economy game and keep savings in cash. The Federal Reserve is basically saying invest that money or watch the value dwindle as they print more and more currency.
The Fed is hoping you put that cash in the equity markets, but the other option is to invest that cash in hard assets like real estate, collectibles, gold and silver.Chris Poindexter, Senior Writer, National Gold Group, Inc
Gold was down nearly 1 percent as the dollar surged against the euro, but precious metals outpaced the dollar to the downside on a percentage basis.
In early trading gold was off $17.21 to $1,710.67 and silver was off $0.58 to $31.78, for a silver/gold ratio rising to 53.8.
It’s not just gold and silver; commodities are getting pounded all over the spectrum. Platinum is down $26.00 an ounce and is joined lower by crude oil, off more than 1.25 percent, along with palladium and copper.
The damage is not limited to commodities as European and Asian stock markets are also getting beat with the selling bat today. There’s blood in the economic waters everywhere you look this morning. Precious metals prices are part of the broader selling trend that’s crushing commodities and equities with equal gusto.
Federal Reserve Chairman Ben Bernanke is trying to stimulate the economy by lowering borrowing costs but the problem is no one is borrowing at any interest rate. More people are taking out mortgages, capitalizing on lower rates, but others are scaling down on home sizes or opting for less traditional types of housing that don’t require mortgages. Traditional types of stimulus just aren’t working anymore in the post-crash economy.
Whatever the cause, precious metals are on sale and it’s time to start paying attention for buying opportunities. Yesterday I was on the fence about buying silver; today I’m getting the checkbook warmed up. With prices dipping below $31 an ounce and the silver/gold ratio continuing to drift toward 55, it’s time to get in the game. If gold dips into the $1,600 range I may start splitting my buys and adding in more gold.
I’m not usually one to buy industrial metals like platinum and palladium, but I’m watching both closely. Platinum anywhere in the $1,500 price range is very attractive, though I prefer silver and gold as they’re more widely traded and frequently easier to exchange.
Yes, it’s sad to watch markets move lower and realize that people are losing trillions of dollars, but those same lower prices make precious metals more attractive. More proof that even dark economic clouds can have a silver lining.Chris Poindexter, Senior Writer, National Gold Group, Inc
Gold finally found some footing after sliding from the $1,780 range all the way down to the $1,720s.
In early trading gold was up $7.89 to $1,725.64 and silver was up $0.35 to $32.20, for a silver/gold ratio rising to 53.5. Metals were split on the day with gold, silver, crude oil and palladium trading higher while platinum and copper were lower.
Monday’s price move may not be anything but short covering and is coincidental with the euro finally finding footing against the dollar. Unless big news comes out of the FOMC meeting this week, it seems more likely gold and silver will be stuck in a range.
For the 1 percent of investors who regularly invest in precious metals as part of their long-term investment strategy weeks like these are a mixed blessing. While it’s a little disappointing to watch prices drop, part of the reason gold prices are moving lower is that the economy as a whole is doing better.
Another factor to consider is where an investor would put money in this market? The stock market is dancing around record territory and buying at the top of the market is a very poor strategy. Big investment houses are still peddling derivative investments that it takes an engineer to understand, the very same scenario that set up the big fall of 2008. I think I’ll pass on Wall Street Follies this time around, although I do keep some money in equity sector funds that pay dividends.
The other silver lining to the gold price dark cloud is that rapidly dropping prices provide an opportunity for buyers. That opportunity is all the sweeter for silver as the silver/gold ratio starts to expand as that means silver is a progressively better deal relative to gold. While $32 an ounce is a little high for silver, I’ll buy in that range if the deal is right. In precious metals the old saying that when the going gets tough, the tough go shopping, usually my wife’s line, is particularly appropriate.
Any time precious metals are getting beaten down, whenever analysts start saying it’s a difficult environment for metals, when the talking heads on the business channels say sell gold, that’s when I start pulling cash together to go shopping. When I start reading articles entitled “Gold To $3,500!” is when I start thinking about what I could sell.
Following the herd most frequently ends at the slaughterhouse and I’m pretty happy with my cranky, contrarian ways.Chris Poindexter, Senior Writer, National Gold Group, Inc
It started out as another down day for the shiny metal as European stock markets get pummeled as a crazy, largely depressing trading week grinds to a close.
In early trading gold was down $7.07 to $1,734.83 and silver was off $0.39 to $32.42, boosting the silver/gold ratio to 53.5.
It doesn’t help the mood that today is the anniversary of Black Monday, the day the Dow plunged 23 percent. Gold was $481 an ounce on that day.
Yet compared to the crash of 2007/2008 Black Monday is barely a blip, a minor anomaly that you have to look hard to even see on the chart. Today that size swing would be a down day and Wall Street would knock off early to hit the golf course. There would be no Senate hearings and no investigations by the SEC. Gold was $661 dollars an ounce in June of 2007.
When you consider that not much has changed in the wake of the three biggest stock market crashes in modern history, it’s easy to understand why people are losing faith in the markets. I would argue that the markets and our currency policy are inseparably intertwined. Much of the explosive growth we’ve experienced can be traced to cheap money policies started under Greenspan.
As we look at a market back near 14,000 and gold prices still over $1,700 an ounce, it’s easy to understand why investors are nervous. The illusion of growth that we experienced in the 90s was really fueled by currency dilution. The numbers only look bigger because our currency is smaller, a fact reflected in the price of gold. Yes, certainly our GDP has grown, not all of the growth was illusionary, but how much was currency policy and how much was real growth? The answer depends on which metrics you use.
What was once a currency policy intended to spur growth has now become routine business. The Fed even going so far as implementing QE Infinity, limited to $40 billion a month. While $40 billion doesn’t sound like much in our modern economy, it adds up to nearly a half-trillion a year.
Hard assets as part of your investment mix are more important now than almost any time in our financial history, but don’t let fear push you to folly. Stick to a fixed percentage of your wealth, 10 to 20 percent, and wait for dips in prices to add a little bit here and there.
Gold and silver are the last real money the world has left. It used to be the dollar was “good as gold” but who is really feeling that today?Chris Poindexter, Senior Writer, National Gold Group, Inc
The dollar rallied against the euro sending commodity prices, including gold and silver, tumbling in overnight trading.
Gold is down $6.38 to $1,741.88 and silver is off $0.18 to $32.91, leaving the silver/gold ratio at 52.9.
Silver and gold have a lot of company to the downside today with platinum, palladium, crude oil and copper all turning in lower numbers.
It would be easy to point to the strength of the dollar as the primary factor for today’s price movement and it certainly is one of the factors, but metals prices are down more on a percentage basis than can be accounted for by currency prices alone. There’s something else going on here and, whatever it is, it feels vaguely ominous.
Like any market trend there are many factors influencing the price of gold, including the Chinese economy which marked its seventh straight quarterly slowdown. Though keep in mind that a “slowdown” in China means a growth rate of only 7 to 7.5 percent. If the U.S. experienced that kind of growth it would be raining champagne.
Even with yesterday’s big drop, gold is a long way from retesting low prices for the week and global monetary policy is still firmly on the side of gold and silver investors.
We’re also seeing slower retail sales in India, the world’s number one buyer of gold, as high prices, a higher import duty and weak rupee combine to undercut sales during the peak festival buying season. Gold dealers are scrambling to offer discounts and freebies in an effort to attract more buyers.
Another factor in the equation for gold prices is the rebounding U.S. economy. The unadjusted employment numbers for October are showing a 7.3 percent unemployment rate, confirming earlier numbers showing America is going back to work. While many are working for lower wages or are still underemployed, people are working again and consumer confidence is moving higher. That renewed confidence is showing in housing starts, which ticked up to levels not seen since 2008.
A rebounding American economy puts upward pressure on the dollar and a strong dollar tends to push gold prices lower. But the recovery has a long way to go, so hang in there with gold and silver, which may yet have the last laugh.Chris Poindexter, Senior Writer, National Gold Group, Inc
The euro had a big surge against the dollar and gold prices finally reacted by moving higher.
In early trading volume was light and gold was up $1.05 to $1,749.88 and silver was off $0.04 to $33.05, for a silver/gold ratio of 52.9.
It was a relief to see gold finally react to currency valuations as the precious metal had stubbornly refused to move higher despite gains by the euro against the dollar in previous trading days. The not so great news is that prices, on a percentage basis, didn’t come anywhere near matching the gains by the euro. There is a stubborn bearish sentiment around gold this week that’s been tough to shake.
Part of the recent trend in gold prices is related to structural shifts in investor confidence, particularly in Europe. Germany has given Spain some flexibility in a precautionary line of credit from Europe’s rescue fund. The perception of stability for Spain is rocking European stock markets as investors switch from defensive investments, like hard assets, to more risky investments in equities. The iShares MSCI Spain Index, an ETF traded in U.S. markets that tracks with the Spanish stock market, was up 4.08 percent in just one trading day (disclosure: I own shares of this ETF).
All this Euro-confidence is putting a dent in gold prices and, if it keeps up, will start lowering price forecasts for the rest of the year. Another puzzler in all this is a silver/gold ratio that’s creeping up as well. Now that the silver/gold ratio is moving closer to 55, I may get off the sidelines and start stacking silver again.
When other investors are moving into equities is the time when I start thinking about selling equities and start looking for bargains in other sectors. That is a very hard investment move for a lot of people. At the very time investors start feeling good about their equity investments and the news is positive, it’s hard to go against the tide and sell. When your equity investments are moving higher, you naturally want to hold on to them. It’s hard to sell a winner, which is why the majority of investors lose money.
Now is a great time to be making friends with your local gold and silver dealers. The sudden surge in prices has put off many buyers and, like any retail business, your neighborhood precious metals dealer needs cash flow. Most of them are ready to deal and at times like these it’s good to have friends in the business.Chris Poindexter, Senior Writer, National Gold Group, Inc
Once again today we’re “up” on lower prices than yesterday.
In early trading gold was up $4.05 to $1,739.70 and silver was up $0.13 to $32.80, with the silver/gold ratio creeping up to 53.
What a strange trading pattern we see developing this week as European equity markets are flying on the news of progress on a bailout plan for Spain. The news sent the euro on a run against the dollar, which usually has an immediate and positive impact on gold prices, but not lately.
Gold prices have moved stubbornly lower, often in opposition to changes in currency valuations. Added to that the silver/gold ratio is moving back up for the first time this month. We were steady at 51 last week, now we’re up to 53 in a matter of days. So, what’s going on?
My guess is that the confidence in Europe is real this time and is triggering some money to shift away from defensive investments and toward what are called “risk on” investments. Investors are selling gold and moving some of that money into European equity markets.
Another factor is that some investors are diversifying their hard assets by ranging into other types of investments that are rightly called collectibles. Those are things like guns and ammo, stamps, watches, rare wines, art, farmland, rare coins and other assets that are of interest to collectors.
I’m not a big fan of collectibles because it’s so hard to put a value on what you’re getting. Sure, with coins you have guides like the Blue and Red books, but you also have to know how to grade coins and that assessment can be subjective. Stamp collecting is similar, though that tends to be a smaller core of active traders.
I tend to prefer gold and silver because it’s straightforward. A troy ounce of silver is one troy ounce whether it’s a J&M bullion bar or a $1.40 in face value junk silver coins. Do also keep in mind that there are 14.58 troy ounces to a pound, not 16. You’d be amazed how many people get confused on that point.
Like with equity investments, I do encourage you to explore other hard asset options. But also keep in mind that gold and silver have been prized as a medium of exchange as long as man has been scratching out notes on clay tablets dried in the sun. You can’t say the same about watches, art or wine.Chris Poindexter, Senior Writer, National Gold Group, Inc
Gold prices sank on Friday and just kept going south all day and didn’t stop until they reached the $1,750 range.
Gold ended Friday down $15.79 to $1,753.10 and silver was down $0.63 to $33.44, raising the silver/gold ratio to 52.4. Precious metals were down for the week as well.
Tanking gold prices with a rising silver/gold ratio almost brings back memories of this summer’s trading pattern. Not only did gold go down, it went down on hard on day that the euro gained against the dollar. Precious metals and industrial commodities took a thumping and it never let up all afternoon.
So why the big move down on a week when most analysts, including myself, expected gold to move higher? I could probably point to this or that and be at least partially right, but the truth is markets are made up of a myriad of conflicting directional pressures that push prices up and down. Picking out one that was really the cause of a spike or crash in hindsight is not a particularly impressive feat.
For gold last week one set of figures that almost certainly figured in the price drop was the dissolving debt in the U.S. economy. We get so used to throwing rocks about deficits and government spending, it would be easy to miss the drop in the debt to GDP ratio and the gradual disappearance of debt at the federal, state and consumer level. Retiring debt has been fashionable in America since 2008 and it’s starting to show.
When the government starts getting responsible with finances, it prompts investors to flood into U.S. Treasuries. The instruments the government sells to finance our debt attract more bids and the cost of additional borrowing plummets. This sudden outbreak of responsibility is a balancing force on the Fed’s plan to print more money via quantitative easing. I do believe that, on a long time horizon, inflation will happen. Inflation running at 2 percent a year doesn’t sound like much but it adds up over time.
Gold’s track to inflation won’t be smooth and there will be noise as other market forces assert themselves at different times. On a long time horizon, gold will find an equilibrium with currency relative to inflation, but along the way will be days like Friday.
For next week that, once again, leaves us at the mercy of fairly well-balanced forces. Friday was a down market in the face of upward forces. It wasn’t just gold and silver, but industrial metals across the board. The silver lining is that if the selling continues we might reach a bonus buying range.Chris Poindexter, Senior Writer, National Gold Group, Inc
Gold prices continued sideways despite a recovery in the euro as markets remain concerned about the pace of global recovery.
In early trading gold was up $2.52 to $1,771.40 and silver was down $0.12 to $33.95 with the silver/gold ratio jumping to 52.2.
Not only is my $1,800 target for this week out the window, it also seems likely we’ll be down for the week. Gold prices remaining flat on a weaker dollar is a bit of concern, and it wasn’t just precious metals. Crude was up, but platinum, palladium and copper were all lower, reflecting a general weakness in industrial metals.
On a long time horizon gold fundamentals are solid. China’s central bank pushed their currency sharply higher against the dollar in an effort to attract foreign capital to Chinese banks. That will provide the Federal Reserve with additional incentive to keep interest rates low and to use all of the planned quantitative easing they have on the table in an effort to give U.S. manufacturing an edge in world markets.
All this serves to point out how difficult it is to put a value on gold. There is no formula that you can plug into a computer that spits out a value for gold. Like any other hard asset or commodity, gold is worth exactly what a buyer with cash is willing to pay for it.
Certainly we can use the spot price for gold as a benchmark, but that is only a guide. The spot price is set by applying a mathematical formula to the price of futures contracts traded on the London gold market. On a short-term basis that price can be manipulated by big trading houses. Bids for futures can put in and later canceled; they can be laddered up and down, trading houses can collude to push prices around, which would be illegal...if they got caught (wink-wink).
That’s why I caution readers not to treat gold and silver as a growth investment. Precious metals are defensive investments that allow the holder to preserve part of his or her wealth on a relative basis. It’s extremely difficult to put an absolute value on gold, just like it’s difficult to put an absolute value on any hard asset.
So don’t get too wrapped up with gold prices day to day. Keep focused on the big picture as it pertains to currency. On a long time horizon gold will find a new relative value to fiat currency and that is the real value of gold.Chris Poindexter, Senior Writer, National Gold Group, Inc
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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