Strong Dollar Blunts Gold Run

Posted: May 01, 2012 12:01 AM

The dollar flexed against European currencies in overnight trading, blunting the surge in gold prices, as economic uncertainty prompted Euro-zone investors to seek the relative safety of the dollar. 

Gold is down $1.53 to $1,663.30 and silver is off $0.12 to $31.22, raising the silver/gold ratio to 53.2. Even though prices are taking a breather today, gold is still at the upper end of the range and threatening to break out of its recent price slump. 

The situation in Europe is again spurring gold demand as investors are faced with more uncertainty surrounding sovereign debt load and the ability of some of the region’s largest economies to pay their bills. 

Coupled with increased demand on uncertainty is a lack of other viable investment options.  The formerly unthinkable prospect of a government not paying its bills becomes more plausible every day.  It’s even possible the “strategic default”, employed by so many underwater homeowners in the U.S., could join the arsenal of governmental economic war weapons, right next to quantitative easing. 

So if bonds are no longer a safe haven, if the derivative-induced inflation of the stock market makes “buy and hold” seem quaint and old fashioned and the housing market is still a bad deal, what does that leave for retail investors? 

As I’ve mentioned before, you’re not buying gold as a speculative investment; you’re buying it as a hedge against Wall Street and government currency follies.  When the investment landscape is bleak and governments undermine faith in their ability to keep their debt promises, then defensive investments become the default choice for investors. 

At some point silver is also going to equalize and spike sharply higher.  While gold prices are now $40 higher than they were last week, silver is still lagging on the demand curve.   If you were already planning a regular buy as part of your disciplined investment approach, then consider splitting this month with silver. 

Chris Poindexter, Senior Writer, National Gold Group, Inc