Yesterday was one of those odd days that gold is “down” but at a level that’s $25 an ounce higher than the day before. Days like this remind us we trade in global markets and our prices at market open can be wildly different from day to day as overnight trading on foreign markets changes the opening price here.
Gold is up $0.55 to $1,689.15 after trading as high as $1,695 at one point until profit-taking kicked in. Silver is up $0.17 this morning to $32.89 bring the silver/gold ratio to 51.3.
The gains in precious metals came after a speech by Federal Reserve Chairman Ben Bernanke on Monday.
Chairman Bernanke indicated that the economy needed to grow faster to increase employment and that a continuation of accommodative policy was needed to support faster growth. That’s fancy economist talk for printing money and using it to purchase government bonds. When the gold markets got that news they went through the roof.
That should also mean equity markets are also going to move higher today after yesterday’s big rally.
I don’t want to get a reputation as a doomsayer, but the fact the Fed is considering more easing when the economy is supposedly recovering is not a particularly good sign. The problem with being a doomsayer is that, someday, the U.S. and global economy will recover and find footing on something resembling sustainable growth. When the sustainable growth day dawns precious metals prices will retreat and will stay down as long as the economy is doing well which, on a historical basis, can be a generational cycle.
As long as the economy stays in a slow growth state, as long as too much wealth remains concentrated in too few hands and sovereign debt weighs on central banks, defensive investments will continue to maintain a competitive edge. Some of you watching your 401(k) balance probably noticed that, after accounting for the money you deposit from your paycheck, the returns have been dismal. Meanwhile, the price of the gold in your safe has more than doubled since 2009. That price movement is not rooted in politics, it’s simple math.
With equity investments flat since 2008 and returns from the housing market in negative territory, where else are you going to go?