Gold advanced in overnight trading yesterday before pulling back to Friday’s levels as the dollar continued to strengthen against the euro.
Prices for gold were down $8.40 to $1,660.70 and silver was off $0.16 to $32.22, moving the silver/gold ratio to 51.4, down from 52 on Friday.
The fact that gold and silver are holding in a narrow range is good news as gold prices seem to have found a comfortable level they can maintain.
Weakness in the euro hit other commodities besides gold and silver with crude oil and platinum splitting with palladium and copper which both showed gains. The drop in oil prices and steady gold prices likely reflect concern over the ongoing European debt crisis, which is always near the surface. Good news may briefly eclipse the mountain of sovereign debt Europe is carrying, but it never completely goes away.
In other market news we find out today that hedge fund managers have jumped back into the equities markets. That means if stock prices rise over the next few days, I’m selling. That may seem counter-intuitive but I don’t believe that buzzards circling over your pasture is ever a healthy sign.
If the U.S. stock market rallies and the dollar strengthens along with it, that could put more short-term pressure on gold prices. That’s not all bad news if you have some free cash as you can start your regular monthly small buys.
I don’t see the good news in equity markets lasting very long, especially now that the hedge fund buzzards are back. There just aren’t any long-term drivers for growth and while unemployment is better, it’s still weak from a historical standpoint. Wages and salaries remain flat and as long as they remain down don’t expect any long-term growth from consumer spending.
The Fed is also between a rock and a hard place on currency valuations. While the Fed chairman has thus far avoided injecting more liquidity into the markets, it’s a difficult situation to sustain. The more time that passes, the more pressure there will be on the Fed to ease, particularly in an election year.
The problem with using monetary easing as a tool is that it becomes less effective over time. The more money the government prints, the more they have to print down the road to stay ahead of the debt. Perhaps that’s why Chairman Bernanke has been hesitant to go to that well again.