Gold Steady In Overseas Markets

Posted: Sep 04, 2012 12:01 AM

Gold was largely unchanged in overseas trading as U.S. markets are closed for Labor Day. 

Prices were mostly flat with gold down $0.87 in early trading to $1,687.50, silver was up $0.12 to $31.72, for silver/gold ratio of 53.1. 

If the silver/gold ratio drops below 50, it may be tempting to lock in some silver sales.  Silver is a harder call on the sell side because of the wild volatility in prices, so I try to focus on silver’s price relative to gold when making a decision to buy or sell. 

Gold and silver will both be moved this week as the Federal Reserve releases more details about the latest stimulus plan.  While the Fed will certainly draw criticism for being activist, at least they’re doing something, which is more than you can say for Congress. 

Back in April, I predicted the Fed would be forced into another round of easing by concerns over employment and U.S. exports.  The stronger the dollar on world markets, the less competitive are our exports.  If the Federal Reserve doesn’t keep up on the global race to the bottom on currency values, then we all get to watch companies start moving jobs overseas again and the pink slips start to flow.  Is anyone really up for another round of layoffs? 

If we don’t play hardball on currency, other countries magnify themselves at our expense.  That’s actually been going on nearly 40 years but we’ve been insulated from the full effects by the sheer size and power of the U.S. economy.  Unfortunately, we’re now out of insulation. 

That’s another reason returning to the gold standard would be such a bad idea; it would put the U.S. at a competitive disadvantage in currency markets.   Sometimes the government needs to be able to print money and print a lot of it in order to protect U.S. manufacturing jobs. 

Bizarrely, that same set of conditions makes it good for you, as an individual investor, to hold a percentage of your wealth in precious metals.  While it may be a disadvantage for us to collectively fix our currency to gold, it is one of the few debt free hard assets available to retail investors. 

Other than margin above and below the spot prices that you pay as a transaction fee, there is no broker chiseling away at your gold and silver nest egg and no mahogany row execs figuring out how to pay themselves outsized wages and bonuses instead of returning that money the shareholders or giving their employees a better deal.  In that sense holding gold is your insurance policy against economic funny business.

Chris Poindexter, Senior Writer, National Gold Group, Inc