Gold's Wild Ride

Posted: Nov 14, 2011 12:01 AM

Last week saw gold prices swing from high to low, back toward something resembling the middle ground.  Gold ended higher on the week after going as high as $1,802.82 late Monday, before dropping to $1,736.03 Wednesday afternoon.  It was all uphill from the low Wednesday as gold finished at $1,789.20, up nearly $20 on the week. 

Again next week we’ll have conflicting forces acting on gold.  The shaky Euro-zone financial picture continues to push the demand side as investors move out of equities and into gold to protect their wealth from the deteriorating financial situation in Italy and Greece. On the other side of the gold balance are fears of a global economic slowdown will depress demand and prices for commodities. 

It’s at times like these gold prices tend to decouple from other commodities.  Very few investors flee to crude oil in times of economic uncertainty because you can’t really do anything with it besides sell it to a refinery.  The same with many other commodities where the market for potential buyers is limited. 

It’s at times like these that gold tends to shine because of its unique character as a type of substitute currency.  Silver shines during instability as well, but silver is more closely tied to economic activity than gold and the prices are subject to greater volatility. 

So that leaves us, once again, with gold prices at the whim of the news cycle next week.  You can pretty much forget fundamentals when it comes to pricing in the week ahead; your best gauge of price action in precious metals will likely be the headlines of the day. 

Beyond that the world has to find an alternative to borrowing and spending its way to prosperity.  It may work for a short time before the economy catches fire and burns to the ground, but it’s not sustainable.  It’s not long before nations have to run the printing presses to make their debt payments, which ultimately undermines their currency.  The United States has been able to live a debt lifestyle longer and more successfully than any other nation, financed by the largess of our trading partners, but the gravy train is coming to an end even for the mighty U.S. economy. 

All of that brings us back to gold.  The debt lifestyle of the world’s governments make the long-term prospects for gold quite good.  On the near-term horizon, specifically next week, the appeal of gold is going to turn more on investor’s mood than actual economic data. 

Chris Poindexter, Senior Writer, National Gold Group, Inc


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