Gold Steady Ahead of Fed

Posted: Sep 13, 2012 12:01 AM

The German high court paved the way for Germany to bail out almost the entire European economy and the Federal Reserve starts a two day meeting in Denver, which has kept gold prices to stay on the high side of steady.

Gold is up $8.91 to $1,742.51 and silver up $0.28 to $33.79, for a silver/gold ratio of 51.5. 

Prices for gold and silver also got a boost from a resurgent euro after the German high court paved the way for the ECB to print almost unlimited euros in an effort to dig out of the current economic slump.  The German court decision was already factored into gold prices and we saw only a marginal pop beyond the currency spread.   

Crude oil, copper and palladium were all higher by margins that beat the currency spread as gold hovered near a six-month high.  Spot prices for platinum hit a five month high as labor strikes continue to plague South African mining interests. 

All of that served to prop up gold and silver prices but the really big news won’t be until Thursday afternoon when we get the details from the Fed on the next round of stimulus.  A disappointing offering from the Fed could undercut gold prices in a blink.  Though if the announcement turns out to be QE3, a substantial stimulus program, we could easily see prices move another $100 an ounce higher from where they are now. 

The complicating factor for the Fed is that the dollar is already at a 4 month low relative to other currencies.  Even if the Fed did nothing, U.S. exports would continue to gain a margin against overseas competitors as long as the weakness in the dollar continues.  It’s a tricky game for the Fed because part of the softness in the dollar is due to the expectation of easing.  My guess is they will have to do something, though don’t expect any wildly aggressive moves. 

None of this changes my recommendations for retail investors holding physical gold and silver.  Continue on with a series of small sales as long as prices stay over $1,700, always keeping a reserve in case gold or silver go parabolic.  Do that provided you need the cash for the purchase of real estate or other durable goods, otherwise stay on the sidelines.

This is a dismal time to be sitting on free cash, so don’t sell just for the sake of making money.  The stock market is hitting new highs and, since everyone is talking about the stock market, it’s not a great time to be buying in. 

Right now be glad you have the insurance of physical gold and silver in your safe.

Chris Poindexter, Senior Writer, National Gold Group, Inc