Strong Dollar, Gold Down

Posted: Apr 19, 2012 12:01 AM

The dollar gained against the euro, pushing down gold, silver and crude oil yesterday in overnight trading. 

Gold was down $5.28 to $1,644.89, still in the narrow range between $1,640 and $1,670 we’ve been in for the last month.  Silver was off $0.10 to $31.61 and the silver/gold ratio dropped to 52. 

The precious metals market has been sideways with a slight downtrend all week as it shuffles along looking for direction.  Equities are up for the week and some of the weak downtrend in metals could be investors shifting cash to the stock market. 

Don’t get the idea that I’m complaining about the lack of volatility in the gold and silver market.  I like lackluster markets, especially in precious metals.  That’s the way the metals market used to trade all the time.  The gold and silver trade used to be sedate and predictable, inhabited by relatively small groups of people largely trading physical product. 

There are events on the horizon both in Europe and the U.S. that could bring this quiet time to a calamitous halt, so enjoy it while it lasts. 

In Europe the risk spotlight has temporarily shifted from Greece to Spain with the European finance community now speculating openly about what a bailout for Spanish banks and the government might look like. 

There is no doubt that Spain is in trouble and we’re talking Great Depression kind of numbers.  The unemployment rate in Spain hovers around 24 percent, worse than Greece and more than twice the Euro-zone average. 

It all adds up to another round of bailouts which will almost certainly put a crimp in the fragile global recovery.  Over the longer term, low growth and a continuation of loose monetary policy will limit growth in equities and make gold more attractive. 

While the long-term trend still looks good, short-term things could get really choppy.  A lot depends on where the stock market goes from here and remember that when investors lose money in the equities they sometimes sell gold and silver to cover the losses. 

This type of market points up why you make small, regular purchases of precious metals instead of betting big.  I don’t see any reason to stop regular purchases or change your investment ratios.  Until the market gains some direction, the best advice is just to stick with the plan. 

Chris Poindexter, Senior Writer, National Gold Group, Inc