Gold Finds Footing

Posted: Apr 06, 2012 12:01 AM

Gold prices seem to be stabilizing after the gut-wrenching drop earlier this week that abruptly ended a gradual upward trend in prices. 

Prices for gold were up $1.38 to $1,624.73 and silver was down two cents to $31.35, bringing the silver/gold ratio back up to 51.8.

During times of volatility try to remember that the big price swings are induced by sales of futures contracts and exchange traded instruments loosely based on bullion and not physical sales.  The Fed meeting notes were released in the afternoon and prices were down already that day.  Due to the logistics of physical gold sales, it’s simply not possible for them to impact the market that fast. 

So think of volatility as a layer of water over more solid rock underneath.  The futures market for commodities can get roiled by the winds of rumor and slosh around wildly, but the rock under it, actual physical gold sales, changes much more slowly.

The drive for physical sales would begin if smaller investors, people like you and I, started seeing long-term strength in the economy which could be translated into a bear market for gold which could go on quite a long time.   

Personally, I’m not seeing that strength in the economy.  It was housing fueling the heady days of the early 2000s, a housing market that was ultimately not sustainable.  Six years out from the great crash, we’re still looking for a bottom in housing.  In addition, there is ample evidence that we’re in for a new round of foreclosures.

Add to the foreclosures an escalating number of people who have simply opted out of the rotten deal that home ownership has become. (Warning: Shameless plug for my new book ahead)  An experience that has prompted many to consider alternatives to traditional housing.

The economy is not going to recover until there’s a sustainable driver for growth and if not housing then what?  I don’t see any national infrastructure investments getting through a divided Congress;  manufacturing has improved but not enough to lift us out of the gloom. 

Right now I’m not seeing any reason to sell precious metals and the low $1,600 range seems like comfortable territory. 

Chris Poindexter, Senior Writer, National Gold Group, Inc