Gold Finds Support

Posted: May 16, 2012 12:01 AM

It was a wild ride but it looks like the euro and gold have found some price footing after recent losses. 

Gold was up $4.21 to $1,562.56 and silver up $0.25 to $28.45, leaving the silver/gold ratio right at 54.9.  Platinum and palladium were also up, with copper and crude oil flat to lower. 

The bleeding hasn’t completely stopped for the European stock market with the FTSE down another 0.19 percent, though the STOXX 50 and DAX both showed small gains on the day.  In Asia the Nekkei posted another drop, leaving the index down on the month. 

Anti-austerity party officials in Greece rejected a plan to allow an appointed group of technocrats manage the finances until the elections were settled. Believing they can make further gains in another round of elections, the opposition is in no mood to cut deals. 

Either way, Greece was supposed to make a 436 million euro payment today to the bondholders who rejected the voluntary accord.  Paying the notes in full would anger the investors who took the deal; not paying would count as a default leaving Greece to choose between two equally bad options. 

What effect all this will have on gold prices is difficult to say.  I believe at this point the dash for cash should be running out of steam.  We have basically rolled gold prices back to the summer of 2011.  Last year gold showed pretty solid support at these levels and there’s no reason to think support won’t materialize here once again. 

Where it all could go out the window is if the European Union starts to unravel, but even that is a two-edged sword for gold.  The short-term cash conversion panic would be balanced out by a flight to safety, which would certainly include precious metals.

No matter how it turns out it’s going to be the most fascinating economic period we’ve seen in a long time.  If you have some free cash at your disposal it’s a rare opportunity to accumulate gold and silver at fire sale prices. 

With the volatility that’s almost certain to follow, this may be a time of very rapid profits in metals.  While you shouldn’t be buying precious metals as a short-term investment, it’s always nice to be in the money by the time your shipment arrives. 

Chris Poindexter, Senior Writer, National Gold Group, Inc