Gold edged lower on Friday based largely on profit-taking after a big move up earlier in the week, its highest weekly rise since January 2009.
Despite the pop mid-week there doesn’t seem to be a lot of conviction in the market up or down. Some analysts are suggesting there’s no reason for investors to be buying gold right now because of the deal the European finance ministers reached and rebounding U.S. economic data.
I realize I tend to be somewhat of a curmudgeon when it comes to investing but it seems way too early to be popping champagne on either the European bailout deal or the U.S. economy. When you look at the amount of cash still on the sidelines it just doesn’t make sense there would be a lot of investors selling gold in favor of “risk on” investments like equities.
There are still a lot of details to work through on the Euro-zone bailout plan which, despite the current optimism, is far from a done deal. The other factor in Europe to consider is Ireland was making noise about getting a better deal on their bailout before the ink was even dry on the agreement for Greece. Today Spain and Portugal are calling on the U.S. to help bail them out, apparently unaware that our national debt is approaching 100 percent of our GDP.
Unless U.S. companies start hiring, the recovery here is going nowhere and there’s no indication that is going to be happening in any great numbers or anytime soon. Corporate profits by themselves benefit the corporation and a handful of investors, unless some of those profits are turned into jobs they don’t have any effect on the broader economy. Since there’s no will in Congress to tax those excessive profits, free cash, or companies shipping jobs overseas, we’re stuck hoping for corporate boards to do the right thing. I’m not holding my breath.
Just because there’s no incentive for investors to sell gold doesn’t mean steep price drops are out of the picture due to speculation in the precious metals markets. That aside, I expect gold and silver to return to something resembling fundamentals next week. Apart from any big moves triggered by speculators, expect gold to move in harmony with crude oil and contrary to the strength of the dollar.
Right now the precious metals markets seem to be in a holding pattern and I don’t see anything to shake us out of that pattern.