Gold vaulted over the $1,700 an ounce level in early trading on news the European Central Bank planned to run the euro printing presses as long as necessary to get out of the financial crisis.
Prices were on fire with gold up $17.17 to $1,709.30 and silver up $0.66 to $32.86, for a silver/gold ratio of 52.
As I mentioned before, this is the price level where I would start locking in prices on a series of small sales, particularly if you’re planning on using the cash to buy durable goods or real estate. If you’re planning on just leaving your cash in the bank, where it will get eaten up by inflation, then there’s no point to selling.
We’re also in a zone where gold prices could go a lot higher. When central banks print cash it devalues cash savings and raises the relative value of hard assets, like precious metals.
The problem is there’s no way to know just how far currency should be devalued because there’s no absolute measuring stick for what the price of gold should be relative to currency. The supply of money goes up and down and there’s no way for those of us at the bottom of the economic ladder to know how far. Sure, we can look at the money supply numbers, published by the same organization manipulating our supply of currency, but that doesn’t really tell us anything.
My sense is the overhang of excess currency in the economy is quite large, huge actually. Trillions of dollars the Fed created in an effort to inject liquidity into the system and stave off economic collapse. In one sense that’s not all bad because almost every other central bank on the planet was doing the same thing. So in relative terms we may not be any worse off than most other countries.
If my suspicions about the currency supply are correct, then the price we’re seeing today for gold and silver could be vastly out of line with where it should be where the whole truth to be known.
All the same that doesn’t mean I’d be jumping into the market right now. The time to buy gold and silver is when no one is talking about gold and silver, not chasing a bull market. If you took my advice and loaded up this summer, good for you; sit back and enjoy the ride. Maybe make a few small sales if you need the cash. If you didn’t buy this summer, if you waited until gold was back in the headlines, then you’re taking your chances.