Gold leveled off after Thursday's long drop in the wake of comments by the Federal Reserve pushing off consideration of additional stimulus.
In early trading gold was higher by $0.10 to $1,588.48 and silver was off $0.19 to $28.85. That brings the silver/gold ratio down to 55. The bloodbath yesterday puts gold on track for the largest weekly loss in a month, though prices are firming up quickly today.
If it’s any consolation, your 401(k) got it a lot worse with the DJIA dropping 1.96 percent, the S&P lost 2.23 percent and the NASDAQ was set back 2.44 percent. Yesterday’s jaw-dropping decline was brought on by the sudden realization that with $6 trillion in new money already on the books, the Fed may not have any ammunition left to pull the world out of the current economic slump.
More bad news trailed in from the housing front when sales of previously owned homes dropped sharply in May. While existing home sales were higher than last year, that’s like saying they were a lighter shade of pitch black with housing market still dragging 6.6 months of inventory on the books and foreclosures still accounting for 25 percent of sales. The good news for the housing market is that prices are bouncing off the bottom and trending higher.
From here precious metals will get a boost from the situation in Europe as investors seek safe haven options for the mountains of cash they’ve drawn out of banks and acquired from selling equities. When it comes to investing, gold and silver may be the best option open to many retail investors.
As I’ve mentioned before, retail investors should stick to buying bullion-priced physical gold and silver with the intent to hold it over a long period of time. Gold backed exchange traded products are subject to the same market manipulation and derivatives trading as any other stock.
Physical gold and silver are some of the few investments in solid things that you can use to preserve the value of your wealth and buying gold through exchange traded products undermines many advantages of holding the physical metal.
That’s not to say gold and silver can’t lose value, only that they will hold some relative value against whatever is passing for currency at the time. Whether the gold and silver in your safe will be worth a lot or a little will depend on the economic conditions and currency policy when you take it out of the safe, but it will be worth something.