A surge by the euro and comments from the Federal Reserve indicating they may be prepared to warm up the printing presses combined to power gold higher in overnight trading.
In early trading gold was up $5.76 to $1,661.20 and silver up $0.43 to $30.28, giving us a silver/gold ratio of 54.8, the lowest in the last few weeks.
Comments by the Fed chairman powered gold higher as investors position themselves for the U.S. to once again debase its own currency. This comes at a time of year when demand for gold jewelry typically increases in Asia. India is facing some significant economic headwinds right now, but even a marginal increase in demand in the current climate will likely send prices higher.
As you know I’ve been advising retail investors of physical gold to stay out of this rally unless prices go over $1,700, then consider making some small sales. Because of the logistics and margins on physical gold sales, it just doesn’t pay to do a lot of physical gold trading. That means you’re buying physical gold and silver for a long time horizon, measured in years or decades.
Viewing physical gold through the lens of a long-term investor means you don’t have to chase gold bull markets. If you want to play gold rallies, then you’re better off buying an exchange traded product like a gold ETF, which can be bought and sold for the cost of a discount brokerage commission. Another bonus to ETFs is if you think gold is over-priced, you can short sell an ETF, just like any other equity. Personally, I’d rather stick a fork in my hand than play the gold market against the sharpies on Wall Street, but to each their own.
Keep in mind how many times the Fed has disappointed investors looking for more stimulus in the recent past. If the Fed doesn’t come through, or produces another marginal bond-buying program, you could see the bottom drop out of this gold rally in a blink.
As it is I would expect to see some push-back on prices as profit taking picks up steam. Many of the factors combining to push gold higher are coincidental and I’m not really confident we can sustain this rally through the end of the year.
Don’t let my grumpy cynicism rain on your parade too much. If you took my advice and accumulated gold at $1,580, you’ve now beat the buy and sell margin on physical gold and are in the money. While you don’t invest in physical gold for short-term profit, it’s kind of nice when it happens. Enjoy the moment.