Dow Tanks, Gold Rebounds

Posted: May 19, 2012 12:01 AM

Investors pushed commodities higher as the euro rebounded against the dollar after Germany tells Greece there will be some flexibility in their bailout terms. 

Gold was up $14.44 in early trading to $1,589.40 and silver was up $0.38 to $28.47.  The silver/gold ratio dropped to 55.8. 

Commodities in general are doing well  with gold being joined on the upside by platinum, palladium, crude oil and copper. 

There’s also evidence that Greek voters really don’t want to leave the euro and the pro-EU parties may win enough of a majority to form a government next month.  While Greeks may not like austerity, they like the idea of leaving the European Union even less. 

Things are still way too volatile in the commodities market to start singing Zip-a-Dee-Doo-Dah; all the same if you locked in your buy price on gold or silver yesterday you did well. 

The bad news isn’t over for Europe, not by a long shot.  Even if Greece clings to the euro and Spain, Italy and Portugal manage to avoid default, the European Central Bank is going to be forced into printing billions of new euros.  Currency dilution will happen and that’s ultimately bullish for precious metals. 

On this side of the Atlantic we have our own problems.  If you’re sad about your gold and silver losing money, wait until you open your 401(k) statement next month.  The Dow Jones and S&P 500 are both down on the week and May has been an entirely forgettable month so far. 

Another troubling trend is that U.S. banks using credit swaps to insure European debt to the tune of a half-trillion dollars.  These are similar to the type of derivatives that JP Morgan recently lost $2 billion trading.  Swaps are just a way to trade one risk for another, sometimes in a completely unrelated area of the economy. 

To add to the volatile mix HP just announced 25,000 job cuts, amounting to 8 percent of its workforce. 

Job cut announcements, banks backed by taxpayer money gambling in the derivatives market, we’ve all been to this rodeo before and it doesn’t end well.   As Yogi Berra used to say, it’s deja vu all over again. 

Chris Poindexter, Senior Writer, National Gold Group, Inc