A Good Week For Gold

Posted: Apr 28, 2012 12:01 AM

Gold finished the week higher.  That’s good news after the stomach churning drop to the $1,620 range. 

Gold was down $2.41 this morning to $1,654.49 and silver was up $0.04 to $31.10, lowering the silver/gold ratio to 53.1. 

Reuters thought they were being cute sending a correspondent out in the field with a gram of gold to see if he could actually buy anything with it, then act suprised when none of the retail stores would accept it. 

What Reuters demonstrated was that physical gold is not conveniently fungible and the U.S. economy is not set up to barter any physical commodity.  That they have so much time to devote to the glaringly obvious means it must be a slow news day.  You’d get the same response if you tried to take a share of GE stock to the grocery store.  What does that really prove? 

In spite of Reuters flip reporting, there are good reasons to own physical gold and silver, though using precious metals to buy groceries is not one of them.  You buy gold and silver so that you have an absolute weight of a commodity with relative value. 

In other words, no matter what happens to paper currency, you have a physical product of value to other people willing to trade some of their paper currency to get it.  You can then use the paper currency to buy groceries but you have to go through the conversion step first.  At least that’s the way it is today. 

While we’re waiting for a more modern alternative to appear, taking physical possession of gold and silver is the best way to protect yourself from the volatility of traded derivative products like futures.  Since trades on derivative products are mainly settled in cash, there is not a 1-to-1 relationship between the futures contract and the actual, physical commodity being traded.  In fact, there is inflation in the derivative products which can be as high as 50 to 100 times the actual physical product. 

Don’t get caught in that silly game.  If you’re going to buy gold, buy physical gold.  Get a good safe and don’t blab to the neighbors about how much gold and silver you keep in the house. 

Chris Poindexter, Senior Writer, National Gold Group, Inc