Precious metals split with other commodities to start weakly lower as the euro as the dollar recovered against the euro.
Gold was down $0.93 to $1,776.28 and silver was down $0.06 to $34.65, for a silver/gold ratio of 51.2. Other commodities fared better with copper, crude oil, platinum and palladium all starting the day higher.
Gold and silver being left out of the overall rally today point out that investors in bullion-priced physical metals may be hesitant to accumulate at these prices. Gold will have to stay elevated for some time before retail investors become convinced this is a new reality and not simply a blip on the chart induced by a drop in South Africa mining operations hobbled by an ongoing labor strike.
I’m with the investors on the sidelines for the moment. We’re up nearly $200 an ounce on gold and $5 an ounce on silver since early August. Investors locking in some profits here is not really a surprise.
Times like this make one realize that gold is really difficult to value. Warren Buffett is right that gold is not a growth investment; gold does not expand into new markets, pay dividends, or grow quarterly revenue. Precious metals do not have an EPS or any of the traditional metrics we use to value equity investments, which I believe are out of date but that’s a discussion for another day.
Gold has any value at all only because other people around the world are willing to trade some of their fiat currency to get it. The property that makes it valuable is the limited amount of gold on the planet. While countries can crank our fiat script on a whim, gold can’t be printed. Gold can be mined, when the miners aren’t striking for higher wages, but every time that mine shaft goes a little deeper, there is a smaller amount of gold left in the ground and what’s left becomes more expensive to extract. Precious metals are the only honest money left.
Gold is money because there is a finite amount of it available and it has worth to other people. That’s been true for as long as man has been writing things down and I believe it will remain true as long as we need money.
The difficult concept for retail investors is that how much script you can trade for your gold and silver in the future is not really relevant. What is relevant is that it will hold some intrinsic value regardless of what happens to currency.
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