Gold Prices Stabilize

Posted: Oct 16, 2012 12:01 AM

Thanks to the complexities of a global market, gold actually started the trading week “up” but on lower prices than Friday. 

In early trading gold was up $3.71 to $1,746.00 and silver up $0.12 to $33.20, lifting the silver/gold ratio to 52.5.  Precious metals bounced off the bottom after wholesale dealers in India jumped in to buy in advance of festival season. 

In the absence of any big news, I’m expecting prices to move back toward $1,770 as trading proceeds today, with the caveat that investors are twitchy and markets are volatile.  Gold prices have gone down in the face of a weakening dollar the last two trading days and gold can only fight that tide so long. 

Part of the insecurity in gold prices stems from the current round of quantitative easing announced by the Federal Reserve.  Certainly when governments print money that’s good for hard assets like gold and silver, but it’s not always a clear path from one price point to another.  The global economy also plays into the price picture. 

Right now the rest of the globe, particularly emerging markets, are a tad unhappy with Chairman Bernanke because quantitative easing in the U.S. is causing cash inflows to their country and raising the relative strength of their currency against the dollar. 

It gives me some small measure of satisfaction to watch countries that have previously magnified themselves at our expense grumbling about U.S. currency policy.  For too long they had the playing field to themselves, free to manipulate their currency to make their manufacturing exports more competitive in global markets.  Jobs flowed into their country as venture capital gutted U.S. manufacturing and shipped those jobs overseas, but not anymore.  The Fed has sent a clear signal that the party is over. 

That is why I believe gold prices have not reacted to the additional currency in the system as we might have expected.  While the Fed is dumping cash out the back door of the economy, the effect is somewhat muted by retiring debt through the front door.  The Fed’s balancing act is at once keeping inflation in check, raising the government’s creditworthiness, and really cheesing off countries stealing our jobs. 

Until the market sorts it all out, take advantage of the price weakness.  With the silver/gold ratio rising and prices sinking, it might be worth considering adding to your silver supply in the days ahead.

Chris Poindexter, Senior Writer, National Gold Group, Inc

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