Gold and silver joined other commodities in losing more ground in overnight trading on Thursday. The commodity contagion was not limited to gold and silver but spread across the board to crude oil, copper, platinum and palladium as the dollar continued to show strength against European currencies.
Prices for gold were down another $14.24 to $1,636.56 and silver was off $0.47 to $31.70, to levels we haven’t seen since January and raising the silver/gold ratio to 51.6.
As I mentioned on Tuesday there just hasn’t been any big change in the market that should account for this much selling and yet the slide falls well outside what would be normal price corrections. The current price movement has me going back over the fundamentals almost daily, trying to find anything I might have missed. I’m still coming up with very little.
There is some continued softness in the Chinese markets as their economy limps along at only an 8.7 percent growth rate. We should all be suffering with such problems.
In India retail gold merchants are on strike protesting higher taxes on gold, with about half the shops remaining closed. Softer demand in India and China, coupled with the continued strengthening of the U.S. economy, evidenced by the strength of the dollar, are the most prominent bearish indicators but even accounting for those factors the selling seems overdone.
If you look at the five year gold chart you’ll see two periods where gold was in extended bear territory: During most of 2008 and now. There was a very good explanation for the gold bear market in 2008 as investors were selling gold to cover cash losses in equities.
A quick look at the charts will tell you the economy is not melting down today; just the opposite. Equities are flying and corporate profits are running red hot. Normally this is the time to be taking profits in equities and locking in that newly gained wealth by investing some of it in precious metals. You don’t ever make money chasing the market; the way to profit is to zig when the rest of the market zags.
I’m going to risk sounding like I’m denying reality by suggesting this is the time to be making small buys on these dips. When the market puts gold on sale, take profits in equities and put some metals in your safe in the form of gold and silver.
As the price of silver continues to diverge from gold, it’s a good time to consider splitting some of those precious metals purchases with silver.
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