The U.S. dollar gained more ground against overseas currencies which put downward pressure on commodities prices, including gold and silver.
Gold was down $5.47 to $1,585.28 and silver was off $0.29 to $27.11, raising the silver/gold ratio to 58.4. The drop in commodities was right in line with gains in the dollar, with crude oil, copper, platinum and palladium joining gold and silver to the downside.
The continued strength of the dollar will make the next announcement from the Fed all the more interesting this week, although hedge fund managers have all trimmed their positions in gold ahead of the meeting, so don’t expect the volatility we’ve seen in the recent past. This week the Fed could help gold prices, but it can’t do much to hurt gold prices short of raising interest rates and with the debt load the U.S. is carrying, that’s just not going to happen.
The strong U.S. dollar does put the Fed in kind of a quandary. We may not need the extra cash in the system, but without it the dollar is going to keep gaining ground against foreign currencies, putting U.S. exports at a disadvantage on world markets.
There has to be a limit to holding the line on stimulus or we’re going to see jobs start moving overseas again. That’s a development that would be devastating to the fragile U.S. recovery.
For retail gold investors, like you and I, buying and holding actual physical bullion, this presents one of those times of unique opportunity where heads we win and tails we win. If the dollar keeps gaining ground against foreign currencies, our cash buys more gold and silver. If the Fed finally caves and pours more stimulus cash into the economy, then the price of gold we already purchased moves higher.
It really doesn’t matter if the cash the Fed releases into the system stimulates the economy or not; honestly, I don’t think it will have much stimulative effect at all. That’s alright because that’s not the real objective anyway. The real objective is to dilute the value of the dollar in relation to other currencies, but the Fed can’t exactly come out and announce to the world that we’re going to dilute the value of our money, so they call it “stimulus”.
I give the Swiss credit for being honest with their people. When the Swiss franc became the go to safe harbor currency back in 2011, the Swiss Central Bank came right out and said they were going to deliberately debase their own currency.
Either way it turns out, buyers of physical gold and silver will be the winners.