Gold Down On Fed Inaction

Posted: Aug 03, 2012 12:01 AM

As I mentioned yesterday gold prices would be down if the Fed disappointed on the expectation of additional stimulus and that’s just what happened.  The Federal Reserve basically said to check back in six weeks and gold prices lost over $15 an ounce. 

Gold was off the lows in early trading, rising $3.88 to $1,605.83 and silver was up $0.16 to $27.60, bringing the silver/gold ratio to 58.1. 

The damage to gold prices was limited somewhat as the euro recovered against the dollar after the European Central Bank left interest rates at a token 0.75 percent. 

All in all, gold held up very well through what could have been a short-term market disaster.  The strong performance for precious metals has several factors working together to put upward pressure on prices that should last through the end of the year. 

Demand for gold was lower in the first quarter of this year, but that was because prices were higher.  According to the World Gold Council, growth was lead by solid demand from ETFs and central banks, even though the consumer market for jewelry was softer compared to a year ago.  Demand in India was up 7 percent from last year, that despite a slowdown in global manufacturing. 

Other parts of the world paint a mixed picture in terms of the market for gold.  Demand was softer in a number of Middle Eastern markets, including Egypt.  Some of those losses were partially offset by higher demand for jewelry products in the U.S. 

Given the general market recovery from Q1, I’m not surprised that gold prices didn’t return to the $1,580 range after a disappointing report from the Fed.  Compared to the softness in the global market through the first quarter of the year, the second and third quarters are showing some improvement. 

Take advantage of this temporary price weakness to make your regular small purchase.  I would still split my purchase with bullion-priced silver this month. A couple dealers were advertising J&M 1 oz silver bars at a low premium over spot, a tempting addition to anyone’s precious metals holdings. 

If the Fed comes back with a stimulus plan after six weeks and the global economy shows some spark, we’ll all be laughing about the good old days when gold was $1,600 an ounce. 

Chris Poindexter, Senior Writer, National Gold Group, Inc