The dollar exploded against the euro in overnight trading yesterday and knocked the props out from under commodities including gold, silver, platinum, palladium, copper and crude oil.
In early trading gold was down $10.50 to $1,628.60 and silver was off $0.40 to $29.69, raising the silver/gold ratio to 54.8.
The dollar continues to gain ground after tumultuous elections in France and Greece that brought the era of paying the banks before paying for social services to a screeching halt.
Equity markets on both sides of the Atlantic took a dim view of the news with European stock markets down and U.S. markets, coming off a less than stellar performance yesterday, look poised to follow.
With the selloff in equities that means there’s a lot of cash sloshing around in the world financial system and that cash has to go somewhere and right now the destination du jour seems to be the U.S. dollar.
That’s fine for right now, but if it keeps up very long it’s going to start costing the U.S. jobs in manufacturing as a stronger dollar makes our exports less competitive. In the global race to the bottom that script currency has become, being the shining light on the hill is not all that attractive.
The sudden popularity of the dollar will certainly prompt the Federal Reserve to consider easing in order to keep the dollar from becoming a competitive disadvantage.
Until the Fed turns on the printing presses and creates a few hundred billion out of nothing, commodities will continue down as the dollar continues up. That’s good news for gold and silver buyers because it means your investment dollars buy more.
We’ve only seen silver dip below $30 one other time in the last year and before that was in the fall of 2010. With the silver/gold ratio rising close to 55, this is a good time to stock up on silver.
If you believe like I do that the Federal Reserve will find an excuse to inject cash into the economy, then continue accumulating precious metals.
Gold is still in the range between $1,620 and $1,640, despite the headwind of a strong dollar. That is surprisingly solid when you consider what’s happened to crude oil over the last three months.