Gold Bounces Back

Posted: Nov 30, 2012 12:01 AM

Commodity prices started to recover after Wednesday’s shellacking as the euro gained back some ground against the dollar and Euro-zone equity markets traded higher. 

Gold was up $1.07 to $1,723.99 and silver was even at $33.76, lowering the silver/gold ratio to 51.  Industrial commodities were generally higher across the board with crude oil, copper, platinum and palladium all posting gains. 

Yesterday we talked about derivatives and how that unregulated market is like a time bomb in the global economy and today we get an example of what can go wrong when trading on Swedish derivative markets was halted when someone accidentally entered a $69 trillion dollar order, an amount over 130 times the size of the entire Swedish economy. 

That was a simple data entry error that slipped past the safety protocols and it wreaked havoc on trading markets.  What happened in the mortgage backed derivatives market in 2005-2007 was more deliberate and that nearly dragged the whole world over a cliff.  Had it not been for massive government intervention, the results would certainly have been disaster on a global scale.

Every stock you own has layers of derivatives attached to it that trade every day in a shadow market.  You would think after our previous experience with derivatives that this giant casino would have been shut down but that is not the case.  If anything the derivatives market is even bigger than it was in 2007. 

All that money that the government gave Wall Street banks, and is still giving them, that they’re supposed to be lending out to small business is largely going to cover bets made in the derivatives market and make even new and bigger bets.  Not only is the derivatives casino going strong you, the taxpayers, are bankrolling the gamblers! 

For the record, I still invest in equities. I hold broad sector funds in a number of specialty markets, both foreign and domestic.  I invest in equities because, as imperfect as that system is, that’s where the dividends and growth are still to be found.  But when markets are running hot, I do convert a fixed percentage of some of those equity investments into gold and silver. 

I do that because I don’t trust Wall Street or the government’s ability to regulate it and because our currency is really little more than phantom numbers in a computer somewhere. While gold and silver are not growth investments, they are real and solid and in a world economy that seems more smoke and mirrors than real substance that means something. 

Chris Poindexter, Senior Writer, National Gold Group, Inc