Gold Markets Slide

Posted: Feb 08, 2012 12:01 AM

Once again Greece is the excuse for markets to track sideways to slightly down across the board.  Commodity markets tanked along with equity markets as the dollar gained ground against the euro. 

Gold prices were mostly flat with the shiny metal off $0.30 to $1,719.80 an ounce and silver down $0.18 to $33.46 an ounce in early trading Tuesday. 

As I sit here and try to think of a time when we weren’t talking about Greece, it seems to me it’s just a convenient excuse for taking profits.  I’m not at all certain that Greece leaving the European Union would be the end of the financial world as we know it.  The biggest fear is not what would happen to Greece, but whether its exit would trigger a follow-on bank liquidity crisis in Europe, an event the European Central Bank has been working to hedge for quite some time. 

As long as the Greek zombie continues to shuffle along, not quite dead and not quite alive, uncertainty will continue to hang in the air like fog over a cemetery.  The uncertainty will make the U.S. look like a safe haven by comparison and more investors will hedge their currency bets with the U.S. dollar. 

Unless the Federal Reserve finds a reason to print money we’ll continue to see commodities prices track in opposition to the rising dollar. 

Given the circumstances, I expected to see gold prices fall further than they have.  Prices remain stubbornly in the low $1,700 range on strong demand.  Perhaps precious metals prices would be lower had the Fed not already announced a continuation of easy money policies until at least 2014 and made noise on more than one occasion about finding an excuse to ease even further. 

That is where we are today, drifting sideways in lackluster markets that lack either conviction or direction, waiting on some gust of news to put wind in our sails of confidence and give the market direction. 

For now we’ll remain in a slow drift down and these pockets of indecision may be the best buying opportunities that will be available for some time.  As long as emerging market central banks see gold as a hedge against currency manipulation by bigger market players, expect demand to stay high. 

Chris Poindexter, Senior Writer, National Gold Group, Inc