Gold, Silver Gain In Overnight Trading

Posted: Mar 01, 2012 12:01 AM

Gold and silver were steady in early trading yesterday after strong gains overnight. 

Gold was down by $3.48 but still held over resistance levels at $1,782.62 and silver is up $0.23 vaulting to $37.17, a level we haven’t seen since last year.  Yesterday’s price action for silver was enough to change the number of ounces of silver needed to buy an ounce of gold from 50 last week to 48 today. 

It may be confusing to some people that gold can be “down” while still trading at higher prices than yesterday.  The discrepancy has to do with how the spot price is calculated.  The spot price is supposed to be the last actual trade price for physical delivery, but in reality is a complex calculation based on the cost of futures at various markets around the world.  The majority of those “physical delivery” trades are actually settled in cash. 

That’s why, by the time the globe is done spinning through the other markets, gold can open “up” or “down” in the U.S. relative to other markets with no apparent connection to yesterday’s price.  It can be a bit confusing, but if you keep tabs on gold prices regularly it starts to make sense after a while. 

It’s also the reason I don’t recommend retail investors speculate in gold and silver markets through investment instruments like futures or brokerage trades where gold and silver are held in accounts.  There have been cases where brokers were not actually making the physical gold and silver purchases for customer accounts, or were short-selling without notification.  In other words, the same kind of shenanigans some fund managers engage in routinely with customer money. 

Your best defense against the few dishonest brokers out there is taking actual physical delivery, even though that adds a layer of inconvenience when it comes time to convert it to cash.  It also means you’ll have to take the time to shop competitively when it’s time to sell your gold to get the lowest possible spread between the spot price and what you get paid for your gold. 

Holding your bullion-denominated gold and silver investments in bars and rounds issued by widely recognized names in the business and keeping them in the protective packaging will insure you can get the best price with the least likelihood of losing value because of improper handling. 

I’m a big fan of simplicity, something woefully difficult to find in today’s investment environment. 

Chris Poindexter, Senior Writer, National Gold Group, Inc