It looks like the down trend in gold is pretty well established. Some of you may be amused that it took three days to reach that conclusion, but if you look at the number of times there’s been an early dip followed by a rally later in the week, my skepticism is not without some precedent.
Gold was down big again early yesterday , off $23.80 to $1,652.00 and silver is down $0.40 to $32.80, bringing the silver/gold ratio to 50.4.
Prices are moving lower because institutional investors are moving out, leaving fire sale prices in their wake. As far as bad news goes, institutional investors leaving and being able to buy gold at 2011 prices does not exactly move me to tears. Gold in the mid-$1,600s and silver in the $32 range mean it’s time to consider some small buys.
Even though the dollar is stronger, which would normally signal gold prices moving down anyway, today’s sell off is off the charts of anything resembling fundamentals. Gold is down almost 2.5 percent overnight.
On days like this it’s good to ask if anything fundamental has changed in the gold story. Yes, the economy is improving; even the most skeptical among analysts are grudgingly admitting that the recovery is solid, even though it won’t be without the occasional setback. That’s triggering a shift to “risk on” investments like the stock market among institutional investors.
Other than that the gold story has not changed. Central banks continue to add gold as a hedge against currency manipulation and demand remains healthy. There’s a lot of talk about weakening growth in China being down to a paltry 8.9 percent. Seriously? We should all have such problems. The lowered Chinese growth targets have not hurt demand for physical gold in China or India.
It’s great to see the dollar flexing its muscle on the global stage again, but don’t get too warm and fuzzy about a strong dollar. The stronger the dollar, the less competitive our exports overseas. Unless we’re willing to engage in some protectionist trade policy, which I don’t see happening even in an election year, then the Fed will either have to ease (aka print money) or risk losing jobs overseas.
That is not going to happen. The Fed will find an excuse to print money and investor dollars will flow to gold when that day arrives. In the meantime, this is the time to buy.