Gold and silver powered higher in spite of a stronger dollar as gold bulls lead the market higher on speculation the Federal Reserve will find a way to provide more stimulus to the economy.
Gold was up $1.73 to $1,622.63 and silver was up $0.07 to $28.67, bringing the silver/gold ratio to 56.5.
Commodities were generally trading higher tyesterday morning, despite overnight gains by the dollar against the euro. Silver, gold, crude oil and copper are all to the upside this morning while platinum and palladium are trading flat to slightly down.
Speculation about what the Federal Reserve may do continues to favor some type of further stimulus. At a minimum investors are expecting the Fed to continue Operation Twist, which has worked to produce record low mortgage interest rates.
Lower mortgage interest rates have worked to shrink the “shadow inventory” saturating the U.S. housing market but even interest free mortgages don’t help people without a job and it will be the employment numbers that drive the Fed. Even though the jobs numbers last month were soft, there have been 26 straight months of improvement in the employment picture which may dampen the Fed’s appetite for further stimulus.
For gold and silver prices keep in mind that the Fed has already printed roughly $6 trillion in Treasury Reserves, an amount equal to nearly half the nation’s GDP. At this point it’s not clear if precious metals need the impetus of further stimulus to move to the upside on fundamentals.
Make no mistake, if the Fed comes out and says flatly that there will be no more stimulus gold and silver prices will drop like a stone, at least temporarily. Taking a longer view, currency policy and a nearly endless swamp of free cash that will need to be absorbed should drive gold and silver prices in the future. That is not because gold and silver will be worth more, but because the cash in your pocket will buy less.
That leads to a timely reminder that you don’t buy gold and silver to build wealth; you buy them to preserve wealth. Even if you cherry pick the start and end points on the gold charts, it’s hard to find a consecutive 20 year stretch where investing in precious metals would yield a poor result.
Make gold and silver a part of a balanced investment strategy and you’ll be covered in the future no matter what happens to fiat currency in the meantime.