Dollar Rallies, Gold Lower

Posted: Oct 19, 2012 12:01 AM

The dollar rallied against the euro sending commodity prices, including gold and silver, tumbling in overnight trading. 

Gold is down $6.38 to $1,741.88 and silver is off $0.18 to $32.91, leaving the silver/gold ratio at 52.9. 

Silver and gold have a lot of company to the downside today with platinum, palladium, crude oil and copper all turning in lower numbers. 

It would be easy to point to the strength of the dollar as the primary factor for today’s price movement and it certainly is one of the factors, but metals prices are down more on a percentage basis than can be accounted for by currency prices alone.  There’s something else going on here and, whatever it is, it feels vaguely ominous. 

Like any market trend there are many factors influencing the price of gold, including the Chinese economy which marked its seventh straight quarterly slowdown.  Though keep in mind that a “slowdown” in China means a growth rate of only 7 to 7.5 percent.  If the U.S. experienced that kind of growth it would be raining champagne. 

Even with yesterday’s big drop, gold is a long way from retesting low prices for the week and global monetary policy is still firmly on the side of gold and silver investors. 

We’re also seeing slower retail sales in India, the world’s number one buyer of gold, as high prices, a higher import duty and weak rupee combine to undercut sales during the peak festival buying season.  Gold dealers are scrambling to offer discounts and freebies in an effort to attract more buyers. 

Another factor in the equation for gold prices is the rebounding U.S. economy.  The unadjusted employment numbers for October are showing a 7.3 percent unemployment rate, confirming earlier numbers showing America is going back to work.  While many are working for lower wages or are still underemployed, people are working again and consumer confidence is moving higher.  That renewed confidence is showing in housing starts, which ticked up to levels not seen since 2008.  

A rebounding American economy puts upward pressure on the dollar and a strong dollar tends to push gold prices lower.  But the recovery has a long way to go, so hang in there with gold and silver, which may yet have the last laugh. 

Chris Poindexter, Senior Writer, National Gold Group, Inc

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