The Global Sell Off Of Everything

Posted: Jul 24, 2012 12:01 AM

Gold was down hard early but it’s a good idea to keep it in context with what’s going on in the broader economy.  It’s not just precious metals, everything was down in early trading except the dollar. 

In early trading gold is off $13.32 to $1,567.91 and silver is off $0.42 to $26.81, bringing the silver/gold ratio to 58.4. 

Compared to crude oil, gold is a bright and shining beacon of performance as crude lost nearly 4 percent in overnight trading.  Copper lost nearly 3 percent and platinum and palladium are also trading lower by large margins. 

Commodities were not the only casualties as equity markets took a beating overseas with the STOXX, FTSE and DAX all down close to 3 percent.  The dollar surged against the euro, gaining nearly a full percentage point. 

By comparison gold lost less than 1 percent, which is not fun but, compared to other commodities, the drop in gold prices was largely in line with changes in currency valuations.  To me that shows amazing resiliency in a market sell off of such breadth and magnitude. 

There is a bright side to broad and sustained selling which is that investors are going to be buried in cash.  Given how long the selling in global markets has been going on already, that’s just more cash on top of accounts that were already awash in money.  Cash is like water; it has to go somewhere and when the world is flooded with free cash it’s inevitable that some of it finds its way into gold and silver bullion. 

Even given the situation in Europe the selling we’re seeing now seems overdone and it’s been going on for the better part of a year.  Take advantage of sale days like this to lock in prices for a small buy in precious metals.  I encourage small buys because when selling becomes irrational, it becomes disconnected from fundamentals.  Prices can move even lower as panic sets in and creates an even better buying opportunity.  It pays to keep some cash in reserve in case the bottom falls even deeper. 

Silver is on sale at 2010 prices, so I would continue to split my buys with bullion-priced silver bars as long as the manufacturing sector stays depressed.

The deeper the gloom and doom in the media and markets, the more comfortable I get making a recommendation to buy. 

Chris Poindexter, Senior Writer, National Gold Group, Inc