Dollar Strength Wears On Gold

Posted: Jul 09, 2012 12:01 AM

It was another down week for gold with most of the losses coming as a result of the dollar strengthening against the euro. 

Gold ended the week on a sour note Friday, finishing down $23.85 to $1,583.65 and silver was down $0.69 to $27.08.  That brought the week-ending silver/gold ratio to 58.4. 

Commodities in general were down on the week, the follow-on of steady gains in the dollar against the euro.  Investors may not be showing faith in the U.S. dollar as much as demonstrating a lack of faith in the euro.  

Due to the mid-week holiday last week trading volume was light and prices danced all over in that environment.  Despite gains in the dollar gold prices held on to the upper $1,500 range, signalling that there are still plenty of willing buyers for the world’s gold and silver supplies. 

The jobs report last week signaled that the strong dollar is cutting into jobs.  When the dollar gains ground against other currencies, that makes our exports less competitive on world markets.  When the rest of the world is also experiencing slowing growth, it doesn’t take long for inventory to start backing up in the pipeline. 

With the European Central Bank slashing interest rates and promising nearly unlimited cash to struggling Euro-zone banks the inertia of a strong dollar could well continue into next week.  Unless there is some breakout news to move gold higher, it’s likely the dollar will continue to modulate commodities prices into next week. 

While gold prices remain slightly above the levels that would spur bargain buying, silver is still a good deal.  If it’s time for your small, regular purchase, I’d consider weighting it toward bullion-priced silver bars. I prefer bullion bars to coins and rounds as the markup is lower. 

We may not be seeing the early summer sale prices on silver, but prices are still attractive.  I’m seeing a few bullion-priced products in the range of $1.49 - $1.69 over spot, which is not bad.  If gold prices correct farther next week, you can always consider splitting your buy.

As long as the silver/gold ratio stays in the range it is now, I’d weight at least half my precious metals purchases toward silver.   

Chris Poindexter, Senior Writer, National Gold Group, Inc