Big Finish For Gold Last Week

Posted: Sep 10, 2012 12:01 AM

Friday may have started the trading day like a lamb but the lamb got trampled by a stampeding bull market later in the day.

Gold closed the week up $37.05 to $1,735.75 and silver closed up $1.07, to $33.66, for a closing silver/gold ratio of 51.5.   I did a double take on the silver number which seemed high, even for a bull market. 

Not only is silver going up but its velocity is increasing relative to gold. We’ve gone from a silver/gold ratio of 59 to 51 in a few short weeks.  With prices in the mid-$30 dollar range, now it’s silver flashing a sell signal.  As always, I would suggest small sales and then only if you need the cash to buy durable goods. 

It’s quite possible we’re on the cusp of another long bull run for gold and silver as the global economy slowly pulls out of the recent stall.  While both the European Central Bank and the U.S. Federal Reserve are talking about injecting more cash into the global economy, the ECB is talking about nearly unlimited cash.   That’s great news for the gold and silver markets, but it’s bad news for virtually the rest of the economy.

While I expect gold and silver prices to keep moving higher next week, the news from Europe has the potential to throw the markets off track. 

Germany is waiting for a court ruling on the constitutionality of the permanent Euro-zone rescue fund and the Netherlands will vote in a razor tight general election.  There are many things that have to go right next week to prevent Europe’s bailout plans from descending into chaos.

If you look at the price history of gold and silver, it’s never a smooth curve.  But the good news for precious metals investors is that central banks are on your side 

Whenever countries commit printing cash, that’s good news for gold prices.  Though the unfortunate reality is that it’s not so much that gold is going up as the computer blips in your bank account buying less. 

When central banks get silly printing cash, your best defense is converting some of those computer blips into a debt-free hard asset.  Don’t put too much of your wealth in precious metals, markets are just too unstable to trust with your life savings. Keep 10 to 15 percent of your wealth in gold and silver, and you’ll be in good shape in the days to come. 

Chris Poindexter, Senior Writer, National Gold Group, Inc