Gold Off Lows

Posted: Oct 26, 2012 12:01 AM

It’s too early to say if this is gold finding a new normal for pricing, a relief rally or the infamous dead cat bounce, but precious metals finally moved off recent lows and into positive territory. 

Gold was up $12.28 to $1,717.20 and silver was up $0.33 to $32.17, for a silver/gold ratio sliding to 53.3.  Gold and silver had a lot of company to the upside in commodities early with platinum, palladium, crude oil and copper all posting gains. 

The euro finally found some footing against the dollar, although it’s hard to say how long that might last.  The news is mixed from across the pond as the European recovery struggles to gain traction.  The global economy is stuck in a mode that can be best described as three steps forward followed by two back, a recovery that is both fragile and fickle. 

In the U.S. the economic news is much the same as conflicting forces fight for dominance.  While employment numbers continue to improve, layoff notices have begun to creep back into the business headlines.   Layoffs are almost always a net negative for the middle class, even if the job market is healthy, as new jobs being created rarely pay as well as those being lost. 

Regardless of who wins the election in two weeks, we’re all going to be paying higher taxes and higher food bills; there’s simply no way around it.  Compounding higher prices for necessities next year will be the constant inflationary pressure from the Fed’s QE Infinity.  So far inflation has remained relatively tame and the government has been spared the nightmare scenario of escalating borrowing costs because the rest of the world is in worse shape than we are.  But that’s not going to last. 

If you agree with me on the inflationary outlook, then gold prices in the low $1,700 range don’t look too bad.  The counter argument for gold prices says that deleveraging will continue to keep inflation for everything except food prices in check through next year. 

Your precious metals play will depend on which of those forces you think will be the dominant player when it comes to gold and silver prices.  If inflation is your worry, then $1,700 is a fine entry point.  If you believe deleveraging will continue to dominate the financial tides, then expect turbulent precious metals prices with frequent dips into the $1,600 range. 

As for me, I think inflation is a sleeping giant that will surprise everyone when it awakes.  I’m long on silver at these prices and watching for deals on bullion priced fractional gold bars.  Even if I’m wrong on my prediction for next year, inflation will happen eventually. 

Chris Poindexter, Senior Writer, National Gold Group, Inc