Gold Down Again

Posted: Aug 17, 2012 12:01 AM

This is another one of those odd trading days where prices are higher than yesterday but technically down.  Unless we get a monster late rally, it looks like we’re going to see a loss this week.  Any big price moves have been to the downside and buying has not picked up the slack. 

Gold was down $0.70 to $1,603.20 and silver was up a penny to $27.82, with the silver/gold ratio ticking to 57.6. 

So what happened?  Why did the price of gold slide during a week when we should have seen prices drift higher?  Turns out there are several factors feeding the August doldrums this year. 

The dollar is the main factor pushing metals prices around in low volume markets.  The dollar has been edging up against major currencies all week, which creates headwinds for gold and silver.  Gold has managed to beat the currency adjustment most days, but not enough to stay in positive territory. 

Even though central banks have added to their gold reserves, soft jewelry demand from India more than countered that difference.  Jewelry demand in India is off over 30 percent from last year, and recycled gold supplies dropped 7.7 percent in just the first three months of the year.

It all makes sense when you consider that the poor and unemployed in many countries are using their personal gold supply to pay the bills, an experience which should be instructive to retail precious metals investors. 

The way to get ahead in investing is not to be motivated by desperation and be in line with crowds of people selling their gold jewelry to buy groceries.  You should have enough emergency cash to pay the bills for six months and no more than 10 to 15 percent of your wealth in gold and silver. 

Selling gold jewelry is probably one of the worst ways to convert gold and silver to cash.  The margin between the spot price and cash price that you get is not good.  That’s because the gold in jewelry is mixed with other metals and has to go through a recycling center to be melted down and separated.  You’re paying the price of that processing, plus a margin on the spot price when you sell jewelry. 

That’s another reason I suggest bullion-priced bars and rounds from well known names in the metals industry.  When the gold and silver you’re selling is stamped .999 fine, you’ll get a price that’s closer to the actual spot price, minus the dealer’s margin. 

Chris Poindexter, Senior Writer, National Gold Group, Inc