Europe’s Contagion Continues

Posted: May 17, 2012 12:01 AM

European stock markets counted more losses today and the dollar gained more ground on the euro, dragging commodity prices down. 

Gold was down $8.54 to $1,534.40 and silver was off $0.33 to $27.33, pushing the silver/gold ratio to a recent high of 56.1 as fear gives way to panic. 

Stories are surfacing today about Greeks, fearing an exit from the euro, have started a run on banks, concerned about what might happen to their cash if the country returns to the drachma.  What makes this notable is that Greeks have been drawing money out of banks for months, but the steady stream has now turned into a flood. 

The panic spread to European and Asian equity markets with both the FTSE and Nikkei posting steep losses.  The dollar surged against foreign currencies, knocking the props out from under commodities including gold, silver, crude oil, platinum, palladium and copper. 

Welcome to the Great Market Panic of 2012 where investors sell everything that isn’t nailed down to raise cash. 

Oddly U.S. stock futures are actually up slightly this morning after taking more losses yesterday.  U.S. markets may be waiting for the Federal Reserve’s Open Market Committee report due out at 2 p.m. Eastern time.   If there’s a hint of additional easing in the Fed report, expect gold prices to reverse rapidly. 

Keep in mind that gold and crude oil are both dropping on electronic trading.  All the cash that’s backing up in the global economy will have to go somewhere and at least part of it is going to end up in physical gold. 

In the meantime this is a buying opportunity like few you’ll ever see.  My only caution is to stay disciplined and make small buys.  In this kind of volatility trying to time the market is crazy and the temptation to shift too much cash into precious metals will be great. 

Stick with small buys when prices dip and keep your precious metals percentages in line with sound principles of investing.  These are exciting times in the market and everyone loves a bargain, but temper your enthusiasm with some common sense. 

If the Greek contagion spreads and unwinds the European Union, what we’re seeing today could just be the warmup act.  So keep some cash in reserve just in case prices fall even farther. 

Chris Poindexter, Senior Writer, National Gold Group, Inc