Commodities, including gold and silver, were slightly lower as they were buffeted by the headwinds of a strengthening dollar.
Gold was down $5.40 to $1,578.60 and silver was off $0.23 to $27.08 in early trading, leaving the silver/gold ratio at 58.2.
Commodities were down across the board, largely in line with the dollar’s continued rise. Along with gold and silver, platinum, palladium, crude oil and copper were all trading lower in the morning.
Federal Reserve Chairman Ben Bernanke reacted to the stronger dollar undercutting U.S. exports and manufacturing jobs with strong words about being prepared to do more to stimulate the economy and pointing fingers at Congress. The chairman left little doubt that he was prepared to backup the bold talk with even more words in the future.
As an analyst at times like these one must try to avoid the tired comparisons between the Fed and Nero fiddling while Rome burns. To the best of my knowledge Chairman Bernanke does not own a fiddle.
Looking at the broader global market there are some disturbing trends taking shape. Europe has seen short-term interest rates on sovereign debt collapse to nearly zero. Countries can now borrow nearly unlimited amounts of money at basically zero interest, regardless of their bond rating. The historical relationship between debt, credit rating and interest rates has become completely undone.
Of all the scary economic news we’ve been hit with lately, this scares me the most. There is only one way all this free money can suddenly be so available and that’s if the European Central Bank is cranking out massive amounts of new cash on their computers, creating new computer blip money out of nothing.
To me this makes this quiet time of lower prices based on a strong dollar the ideal time to be turning some of those dollars into something solid while they’re buying more. Gold and silver are good choices for hard investments, as are durable goods and real estate.
Stick to your disciplined investment plan of 10 to 15 percent of your wealth in precious metals and make those buys in small, regular increments. Continue to split your buys with silver as long as the silver/gold ratio stays over 55.