The U.S. Federal Reserve announcement that they were extending Operation Twist, while good news for mortgage shoppers it did little to move the markets. Gold is down this morning after prices recovered briefly in overnight trading.
This morning gold was down $17.27 to $1,588.75 and silver was off $0.41 to $27.59, raising the silver/gold ratio to 57.5, the highest its been in months. Part of the contagion affecting silver is the fact that it’s not only a precious metal, but it’s also an industrial metal and more sensitive to the slowdown in global economic activity.
The drop in commodities prices was pretty much across the board as the dollar gained strength against the euro. Joining gold and silver on the downside were palladium, copper, and crude oil. One of the few bright spots in commodities this morning is platinum, clawing out a small gain relative to its commodity peers.
In an environment when everything is down, including housing and equity markets, it’s hard to point at gold and silver and suggest there’s something uniquely impacting that investment class.
The price swings as they stand this morning are largely a continuation of what we saw yesterday after the Fed announcement.
Investors waiting on the Fed to print money before buying gold and silver may not have to wait long. Companies are already revising earning estimates downward for the rest of the year and, if history holds, those announcements are usually followed by layoffs. The situation is slightly different now in that companies simply don’t have extra staff to shed, so it’s likely we’ll see a slowdown in hiring instead of a return to the massive layoffs of 2006/2007 when the nation was hemorrhaging hundreds of thousands of jobs every month.
The Fed has already gone on record saying they’ll provide more stimulus for the economy if hiring doesn’t pick up later in the year. So, if the current situation doesn’t improve, the Fed will once again respond with another massive injection of cash, which is like throwing diesel fuel on the fires of inflation.
I still suggest that wise investors should be preparing for inflationary times ahead. That means moving your investments into solid things: Real estate, precious metals, and other hard assets that hold value in relative terms against currency.
With fewer than 1 percent of retail investors holding silver and gold, it’s still one of the few growth markets left.