Gold Gets Its Shine Back

Posted: May 26, 2012 12:01 AM

The euro recovered some ground against the dollar bringing commodity prices along for the ride.  Gold and silver were up on the day but will likely post losses for the week, largely in line with currency fluctuations. 

Gold was up $5.54 in early trading to $1,562.03 and silver was up $0.11 to $28.28, lowering the silver/gold ratio to 55. 

So we end the week with Greece still in limbo, a slowdown in Asia that includes China and India, the top two gold buying nations in the world and the world’s governments still struggling with a mountain of debt.  In the current period of uncertainty investors are fleeing to cash and relative security of the U.S. dollar. 

All the signs point to a recession in Europe that’s spreading to Asia in the form of reduced manufacturing demand.  The slowdown in manufacturing is putting a damper on physical gold purchases in India and China. 

The whole world is waiting for Greece to finally exit the euro, an event that at this stage will almost be anticlimactic.  While I believe that bad news has already been priced into the market, don’t underestimate the potential shock of the reality. 

All that leaves precious metals in an odd place, with prices at a near equilibrium with many potential triggers that could set off a bull run. 

When the Fed finally caves on the need to pump cash into the economy, that will trigger some buying.  Demand in China and India will eventually return, once manufacturing picks up again and the whole world will move on after Greece switches back to the drachma. 

These are strange days indeed and I’m sticking to my recommendation to accumulate during this time of uncertainty and drifting prices.  In the interest of disclosure, I’m putting some of my own free cash in metals right now, so it’s not just talk. 

We’ll know by the end of summer if I called it right. 

Chris Poindexter, Senior Writer, National Gold Group, Inc