Gold Dips On Euro Strength

Posted: Feb 25, 2012 12:01 AM

The euro gained ground against the dollar, sending gold prices slightly lower in yeserday before the open of US trading.  Crude oil split with gold and continued upward, even in the face of a weakening U.S. currency.

That’s bad news for gas prices and marginally good news for gold. 

While gold reacted to the currency action, prices still continued to close in on $1,800 an ounce.  Gold was down $1.70 to $1,777.00 this morning while silver was down $0.02 after breaking the $35 dollar barrier at $35.32. 

Gas prices would be going up even in the absence of speculation in the crude oil markets.  There has been a lot of finger pointing about why gas prices are going up, but the explanation is really pretty simple and I’m surprised it hasn’t happened before now.  Gas prices are going up because the U.S. is exporting gasoline. Why sell gasoline for $4 a gallon in the U.S. when you can get that much per liter overseas?  Sell gas in the U.S. for $4 a gallon, or sell it in London for the equivalent price of $15 a gallon? If you’re Exxon it’s not a tough choice; simple free market economics in action. 

The developments in other commodities are significant for gold prices because they’re another indicator that inflation is rearing its ugly head in a big way.  If consumers feel cramped by gas prices, they’ll cut back spending in other areas.  When your economy is built on consumer spending and consumer debt, that’s really bad news. 

Adding insult to injury are beef prices; another commodity that is going to cost more just in time for the summer grilling season.  The bad news there is, because of the supply chain logistics, it’s going to be at least three years before there are more cattle in the pipeline.  Beef prices are not going back down anytime soon. 

All of these price hikes, including gold and silver, are reflective of the economy becoming more global.  This is going to be a painful transition for people in the U.S. and gas prices are only the beginning. 

The one hedge you’ll have against inflation will be the gold and silver you have stashed away in your safe.  Paying more for gasoline and beef are sadly inevitable, but those price ripples are going to spread to other goods and services.  It won’t be long before we’re paying more for everything. Inflation is coming and it’s going to hit us hard. 

How are you feeling about the global economy now? 

Chris Poindexter, Senior Writer, National Gold Group, Inc