Euro Meltdown Dings Commodities

Posted: Oct 09, 2012 12:01 AM

It’s probably just as well U.S. markets were closed on Monday as European markets imploded, taking down the euro and commodities with them.

Gold was down another $8.22 to $1,770.55 and silver was off $0.57 to $33.90 in overnight trading with the silver/gold ratio rising to 52.2. 

Crude oil, copper, platinum, palladium were all in the red as the euro took a beating and the dollar surged on currency markets. 

Gold and silver actually got the better of it with the price of gold staying largely in sync with gains by the dollar.  A sudden jump in the silver/gold ratio indicates silver got hit harder by the selling, though there wasn’t any specific news I could find that should have triggered silver sales. 

It’s probably good that markets are closed in the U.S. and Canada as it will give traders here another day to plot a strategy when trading resumes on Tuesday.  If Europe recovers before trading opens here, then we may be spared the worst of it. 

While people may sell precious metals to cover losses in equities, at some point panic selling ends with a lot of people holding a lot of cash.  All that cash has to go somewhere and some of it will find its way back to metals.  That’s why I try to stay out of the path of the thundering investment herd.  I want to have cash to buy when everyone else is selling and be selling when everyone else has cash to buy.  I know it sounds ridiculously simple but market numbers demonstrate over and over that the majority of people don’t follow that simple formula. 

For silver and gold, I still can’t get behind buying at these prices though that may change if the silver/gold ratio keeps rising. 

At times like these in the market is when I like to go out and make friends.  I try to visit local retail gold and silver dealers and do a little window shopping.  Precious metals vendors, like any other business, have to make sales to generate cash flow.  That means they have to turn over inventory, even during times market forces are pushing prices higher.   

As a buyer with cash, I can hold out longer than they can.  Sometimes gold and silver dealers have to lower prices to raise cash and that’s when those relationships can pay a premium.  Occasionally you can pick up bars and rounds at or below the spot price, depending on how long they have been in the dealer inventory. 

Chris Poindexter, Senior Writer, National Gold Group, Inc