Gold Even At The Start

Posted: Oct 25, 2012 12:01 AM

It seems strange that gold not losing ground would be a headline but after the last week one should take good news where you find it. 

Gold was down a mere $0.10 in early trading to $1,710.70 and silver was up $0.15 to $31.93, for a silver/gold ratio steady at 53.5.  Commodities were mostly flat with crude oil, copper and palladium weakly lower and platinum joining gold slightly higher. 

If gold can hold prices over $1,700 an ounce, that’s actually a fairly bullish sign considering we were trading in the $1,580 an ounce range just last August.  The precipitous drop from $1,780 an ounce territory feels like a bear bite but it’s not just gold feeling the pinch, it’s many industrial commodities including crude oil. 

The most likely explanation is that commodities were overvalued relative to the pace of recovery in the global economy.  If that were indeed the cause, then silver would face more exposure to a drop in industrial metals than gold and that’s exactly what we’re seeing as the silver/gold ratio, the number of ounces of silver it takes to buy an ounce of gold, gradually crept up over the last week from 51 to 53.5. 

I would be more concerned if gold and silver were taking a pounding apart from other commodities, but they’re pretty much in line with the rest of the market and at least loosely correlated with currency prices. 

At times like these consider starting up small purchases again.  The U.S. Federal Reserve is backing that strategy by continually diluting the value of your cash savings by printing money.  Many observers expect the Fed to announce that the current QE program will be extended to 2014, which I call QE Infinity. 

The Fed is playing a game of chicken with people who opted out of the debt economy game and keep savings in cash.  The Federal Reserve is basically saying invest that money or watch the value dwindle as they print more and more currency. 

The Fed is hoping you put that cash in the equity markets, but the other option is to invest that cash in hard assets like real estate, collectibles, gold and silver. 

Chris Poindexter, Senior Writer, National Gold Group, Inc