Precious metals trading was mixed as the European Central Bank contemplated cutting interest rates to 0.75 percent to spur development.
Gold basically even, up $1.51 to $1,616.76 and silver is up a nickel to $28.20, lowering the silver/gold ratio to 57.3.
Lower European interest rates are a mixed blessing for gold and silver as lower rates will almost certainly spur more investors to buy dollars. On the flip side the inevitable currency dilution from low interest rates will benefit precious metals. Overall more dilution of the euro should be a net positive for gold.
Another factor that should favor gold and silver investment is the growing realization that the stock market is a rigged game, run for the benefit of a few big companies at the top. We’ve been talking about that for a long time but I was shocked to see the same conclusions being reached in the mainstream financial media. That would have been a timely conclusion in 2005, better late than never I guess.
Investing in precious metals is one of the few ways retail investors like you and I can opt out of all the funny business on Wall Street. Okay, we can’t totally opt out; the price of gold and silver are still set by futures exchanges that are subject to the same type of manipulation as other markets. The good news is once you get past the initial purchase and hold the physical metal, that part of your wealth is largely immune from the usual tricks that rob your 401(k) plan of value.
While the price of gold will go up and down, the ounce of gold you have in your safe is still going to be an ounce of gold when you take it out. That certainty provides a bit of a cushion against market and currency manipulation. Our government is currently being spared the true consequences of printing money because the rest of the world is still willing to buy our debt at incredibly low interest rates, but that can’t go on forever.
All the same, I don’t recommend putting too much of your wealth in precious metals. A healthy mix is 10 to 15 percent, though a few go as high as 20 or 25 percent. The reason for the caution is that gold and silver are not growth investments. You don’t put an ounce of silver in your safe and get 1.5 ounces out 10 years later. Precious metals are defensive investments that hold relative value, not speculative investments that grow in value.
Don’t get me wrong, precious metals are a very good defensive investment but it shouldn’t be the only wrench in your investment toolbox.
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