Gold Breaks Out Early

Posted: Oct 02, 2012 12:01 AM

Commodities started off with a bang this morning, surging higher in early U.S. trading.

Gold is currently up $20.08 to $1,785.49 and silver is up $1.00 to $35.28, for an opening silver/gold ratio of 50.6.  

Last week we we’re stuck in a zone where the underlying technicals are still bullish, but the daily fundamentals, like currency valuations, were neutral.  In technical terms that’s what traders and technical people call “chart consolidation” and analysts covering the precious metals markets call “boring”. While promising, It’s too soon to say if today’s breakout is part of a larger trend.   

Were the underlying technicals not still positive, we would see the bottom drop out of gold prices as investors stepped in to take profits and paper traders shorted gold ETFs.  As it is, gold prices are holding up nicely.

The steady gains in the dollar against the euro came as a surprise to many pundits who were predicting massive inflation and gloom and doom for the dollar because of the latest round of quantitative easing by the Federal Reserve.  For sure inflation will happen, in fact there is evidence it’s already happening though well down in the single digits, not the panic hyperinflation many were predicting. 

That’s because while the $40 billion a month sounds like a lot of money to create out of nothing, the European Central Bank previously announced virtually unlimited bond buying.  In comparison the Fed’s program is a bucket of water on top of Niagara Falls. 

Expect this zig-zag trading pattern to continue until yet another European grand plan for rescuing the Euro-zone economy is announced.  Although it seems Europeans are already optimistic about the future as overseas markets resumed their upward march in Monday’s trading. 

If you need the cash to purchase big ticket durable goods and you have sufficient physical gold reserves in case prices move higher, these upward spikes in gold trading are a good time to lock in prices on sales of small lots. 

Otherwise, if you don’t need the cash, then I might just sit tight and enjoy the ride up.

Chris Poindexter, Senior Writer, National Gold Group, Inc