Gold Down On Higher Prices

Posted: Apr 04, 2012 12:01 AM

The rather confusing headline is another one of those odd situations where gold is down yesterday morning, but at prices nearly $10 an ounce higher than the same time yesterday.  The sometimes odd price movements are one of the of the peculiarities of global markets. 

Gold was down $6.32 to $1,672.70 and silver was off $0.18 to $32.86, lowering the silver/gold ratio to 50.9. 

The softness in gold prices seems to be related to strength in the dollar, which is up in overnight trading.  Copper, platinum and crude oil prices sank in harmony with the surging dollar, and only lonely palladium bucked the trend and is up this morning. 

If it seems like we’ve been trading in a narrow range for a long time, it’s because we have.  Take out a bull run last fall and short bear market toward the end of last year and you’ll see gold prices have stayed in a narrow trading range for some time. 

That’s not all bad news, although the volatility gets annoying.  Gone are the days when you could make your small, regular purchases on a schedule. 

The volatility in the precious metals markets means you have to engage in a little market timing at both ends of the transaction.  Hopefully we won’t have to do that indefinitely, but with so many precious metals products traded like equities and the price of gold and silver based on a calculation applied to futures contracts, extreme volatility may be a permanent part of the landscape. 

I don’t consider gold and silver ETFs actually investing in precious metals, even if the exchange traded product is backed by physical purchases.

There have just been too many times when Wall Street has gotten caught dealing from the bottom of the deck for me to trust that somewhere in the bowels of a big financial products company is a vault loaded with gold.  I’m going to go out on a limb and guess the gold and silver is actually stored at a third party vendor which may or may not be audited regularly and may or may not keep enough Good Delivery Bars on hand to satisfy a sudden run on physical gold. 

If one of the big precious metals ETF vendors wants to prove me wrong and offer me a tour of their gold vaults and to witness the daily deliveries of actual physical Good Delivery Bars in and out of the warehouse, I’m prepared to change my mind.  Until then, I’m going to trust what I can put in my own safe. 

Chris Poindexter, Senior Writer, National Gold Group, Inc