To say the precious metals market was unimpressed with the Fed’s new round of stimulus would be an understatement. After an initial boost, gold prices turned south and never looked back.
Gold was down $15.06 in early trading to $1,693.90 and silver was off $0.64 to $32.69, for a silver/gold ratio of 51.8.
To be fair it wasn’t just gold and silver taking a hit, it was industrial commodities across the board. Crude oil, palladium and copper were all trading lower and the biggest hit was reserved for platinum, trading lower by nearly $24 an ounce.
As we discussed previously the short-term fundamentals favor lower gold prices going forward, but I expected the post-announcement QE bump to last longer than a few hours. The weakness we’re seeing across the board in industrial commodities smacks of deflation with the economy showing steady signs of improvement while prices for industrial commodities continue to weaken. One would expect, when industrial demand increases, that prices for commodities would go up; obviously that’s not what’s happening.
Some of the contrary market action is due to the recovery of the dollar against the euro. While the Fed’s QE4 plan seems ambitious you have to consider the numbers in light of what’s going on in other countries. From that perspective the U.S. Federal Reserve’s QE is a lightweight. Once again the U.S. finds itself as the cleanest shirt in the economic hamper.
That doesn’t completely account for commodity price moves as the decrease in industrial commodities is beating the currency spread by a wide margin.
At times like this is where I remind you that you’re not buying gold and silver as a speculative investment; you’re buying it as a hard asset anchor for a fixed percentage of your wealth. So, when these topsy-turvy market days come along, you can relax.
As long as the market is pushing gold prices lower, then maintain your schedule of small, regular buys of bullion-priced gold and silver. It remains a certainty that you’ll never make money chasing the market.
Chris Poindexter, Senior Writer, National Gold Group, Inc