All Eyes On The Fed

Posted: Sep 01, 2012 12:01 AM

By the time you read this the Fed minutes will be old news, but right now prices are heading up in advance of Bernanke’s speech, scheduled for 10 am EST. 

Gold was up $4.32 to $1,659.34 in early trading and silver up $0.21 to $30.58, for a silver/gold ratio of 54.3. 

While gold is up this morning, it’s not for the reasons you might think.  A few of these may be last minute bets on the Fed Chairman’s comments, but it’s mainly an adjustment to currency valuations.  The dollar is down in advance of the Fed meeting, to me that’s another sign investors are expecting at least some happy talk about additional stimulus later in the year. 

The surge in the euro pushed commodity prices higher across the board with platinum, palladium, crude oil and copper all higher on light volume in advance of the holiday weekend. 

I just don’t see the Fed or Congress making any bold moves right now in advance of the elections.  So that means we’ll either get the announcement of pie in the sky by and by (QE3 coming in October) or indefinite thoughtful contemplation.  If Chairman Bernanke throws cold water on additional stimulus, then expect gold prices to drop sharply.  If the announcement is wait and see, which I think is more likely, then expect a milder correction. 

For long-term retail buyers of physical gold and silver, this is all a tempest in a teapot.  If gold prices drop dramatically, then use it as an opportunity to make a small buy.  Otherwise, just wait and see. 

If prices move higher through the fall, which is my read, and the price moves over $1,700 an ounce, then consider starting a series of small sales, particularly if you need the cash to purchase big ticket durable goods or make a down payment on real estate. 

Otherwise, I would just stay on the sidelines until the market settles down.  Remember that the spot price for precious metals is set by a formula applied to futures contracts and the price on those can vary in milliseconds as they’re subject to the same manipulation by high speed traders as equities.  You can’t compete against those trading houses on a level playing field and a smart person doesn’t try. 

All in all it was a great excuse to knock off early today and enjoy your holiday weekend. 

Chris Poindexter, Senior Writer, National Gold Group, Inc