Forces Build Behind Gold Prices

Posted: Apr 03, 2012 12:01 AM

Gold was down yesterday morning but still holding tight to a narrow trading range.  Joining gold lower this were crude oil, silver and platinum.  On the plus side was palladium and copper. 

In early U.S. trading gold was down $7.77 to $1,664.58 and silver was off a nickel to $32.40 lowering the silver/gold ratio to 51.3. 

Softness in the dollar kept gold and crude oil prices from falling even farther, which is too bad because that would have made a nice entry point for a purchase.  There are several factors at work which I believe will eventually boost gold and silver prices. 

While Q1 manufacturing figures are expected to show growth in the U.S. it’s not usual to see some seasonal slowing in Q2.  If Q1 manufacturing is anything less than a blowout quarter that could prompt the Fed to reconsider another round of easing later in the year. 

Also adding to the bright future for gold, Europe continues to struggle through its debt woes.  After stiffing domestic-law bondholders to the tune of 70 percent, Greece is getting push back from international bondholders.  The majority of foreign-law bondholders rejected Greece’s settlement offer and put Athens in a position of either paying in full or not paying at all.  If Athens decides to pay in full it will raise the issue of fairness with domestic-law bondholders. 

Added to Europe’s woes unemployment has reached a 15 year high and a whiff of recession has unsettled overseas markets.  Europe’s manufacturing output has declined over the last two years and the slowdown is starting to bite into employment. 

Meanwhile, in India, the gold trader strike continues with India’s largest gold jewelry dealers on strike over tax increases.  What’s surprising is that the strike in India hasn’t had a bigger impact on gold prices.  With gold taking on the role of a second level currency globally, the retail gold market will become less of a factor in prices over time. 

Any one of those factors could push gold prices higher, taken together gold could go a lot higher. 

Chris Poindexter, Senior Writer, National Gold Group, Inc