Gold managed to pull out a recovery after the disappointing news from the Federal Reserve on additional stimulus, moving higher toward the end of the week.
Gold was up $9.24 in early trading to $1,598.50 and silver was up $0.11 to $27.28, leaving the silver/gold ratio at a surprisingly stable 58.5.
The rally in gold coincides with a surge in the European stock market and gains by the euro against the dollar. The sudden bout of European optimism buoyed commodity prices along with precious metals, including crude oil, platinum, palladium and copper.
In the U.S. we got another reminder of how the equities markets are a rigged game that favor a few big players at the top as details of the $440 million Knight trading loss emerge. Knight’s super-sophisticated electronic trading system went haywire and dumped nearly a half billion dollars in less than an hour.
Other recent reminders were the recent Facebook IPO which was botched by electronic systems at NASDAQ and a technical problem that kept an exchange called BATS Global Markets from completing their own IPO.
The tales of Wall Street traders losing hundreds of millions when electronic systems fail might not seem like big news to retail investors, but the real news here is not what happens when they fail, but what happens when they work. When they work these incredibly fast systems push stock prices around thousands of times a second. At the first hint of a market drop, these systems move to limit losses by selling positions.
You and I don’t have such loss limiting technology on our side and retail investors end up holding the bag when markets drop. High speed trading system extract value from your investments without providing any value in return. That’s the main reason I don’t invest in individual stocks any longer as mere mortals are ill equipped to compete against these programmed trading juggernauts.
The 10 to 15 percent of your wealth in physical silver and gold is largely immune from such manipulation. Certainly the Wall Street sharks can fiddle with commodity futures and introduce wild short-term volatility, but over the long term prices will align with currency values.
The ounce of gold you put in your safe will still be an ounce of gold five years from now and, compared to the stock market, that’s a pretty good deal.